EUR/GBP approaches 0.8660 support area again, weighed by strong UK inflation data

Euro upside attempts remain limited on Wednesday, with the Pound buoyed by strong UK inflation.
UK inflation posted its largest Y-o-Y increase in a year and a half, putting July's rate cut into question.
EUR/GBP maintains its broader bullish trend intact while above 0.8660.

Guillermo Alcala FXStreet

The Euro recovery attempts against the British Pound have been capped at 1.1680 during Wednesday’s European session, and the pair has pulled back to levels near the 0.8660 with the Pound buoyed by strong UK inflation figures.

The broader trend, however, remains positive. The common currency continues to trade in a sequence of higher highs and higher lows, 3.8% above late-May’s lows, and with downside attempts limited above a previous resistance, at the mentioned 0.8660.

Strong UK inflation puts BoE cuts in danger

Data from the UK revealed that consumer inflation accelerated to a 0.3% monthly rate and 3.6% year-on-year in June, beating expectations of 0.2% and 3.4% respective increases and posting the strongest yearly inflation since January 2024.The core inflation, more relevant from the BoE monetary policy perspective, rose 3.7% from June last year, against market expectations of a 3.5% reading, unchanged from the previous month.

Likewise, retail prices grew 0.4% on the month and 4.4% yearly, above the 0.3% and the 4.3% respective readings anticipated by market analysts. These figures cast some doubt about a widely expected BoE rate cut after this month’s meeting and have provided some support to the British Pound.

The Euro, on the contrary, remains on its back foot on Wednesday, weighed by the lack of progress in the EU-US trade talks. Eurozone data released earlier today revealed that Italian CPI remains below the ECB’s 2% target, and a larger-than-expected trade surplus has failed to give any significant boost to the Euro.

Economic Indicator

Core Consumer Price Index (YoY)

The United Kingdom (UK) Core Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. The YoY reading compares prices in the reference month to a year earlier. Core CPI excludes the volatile components of food, energy, alcohol and tobacco. The Core CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

Economic Indicator

Retail Price Index (YoY)

Retail Price Index released by the National Statistics is a statistical measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is widely considered as a key measure of inflation that indicates an accurate reflection of the cost of living. Normally, a high reading is seen as positive (or bullish) for the GBP, whereas a low reading is seen as negative (or bearish).

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