EUR/GBP holds gains around 0.8550 following UK CPI inflation data

• EUR/GBP remains stronger following the release of cooler UK inflation data.
• UK inflation fell to 3.4% YoY in May, as expected, though it remains higher than the BoE’s 2% target.
• ECB policymaker Villeroy noted that the central bank is well-positioned on its monetary policy outlook but highlighted geopolitical tensions.

EUR/GBP extends its gains for the third consecutive day, trading around 0.8560 during the early European hours on Wednesday. The currency cross remained stronger as softer United Kingdom (UK) Consumer Price Index (CPI) inflation data could support the sentiment surrounding the Bank of England (BoE) keeping interest rate steady at the June meeting scheduled on Thursday.

The Office for National Statistics (ONS) reported that UK CPI increased by 3.4% year-over-year in May, as expected against the 3.5% rise in April. The reading remains distant from the Bank of England’s (BoE) 2% target.

The monthly UK CPI inflation eased notably to 0.2% in May from 1.2% in April, coming in line with the estimates. Meanwhile, the core CPI, excluding volatile food and energy items, rose 3.5% YoY, compared to a 3.8% increase in April, while missing the anticipated 3.6% figure.

The EUR/GBP cross also receives support as the Euro (EUR) gains ground, supported by the hawkish tone surrounding the European Central Bank’s (ECB) policy outlook. ECB President Christine Lagarde said that rate reductions are coming to an end as the central bank is now “in a good position” to deal with prevailing uncertainties.

On Tuesday, ECB policymaker Francois Villeroy de Galhau stated that the central bank is in a good position monetary policy outlook but highlighted that uncertainty increases following the Iran-Israel conflict. "We should incorporate Euro appreciation into our monetary policy decision," "I fully support ECB President Christine Lagarde's idea of the global role of the Euro," Villeroy added.