EUR/GBP approaches 0.8700 as the soft UK Inflation weighs on the Pound

• The Euro remains moderately bid approaching resistance at 0.8680.
• The soft UK inflation levels are weighing on the Pound.
• EUR/GBP is likely to face strong resistance at the 0.8680/90 area.

The Euro maintains a moderately bid tone on Thursday´s European session, with the pair edging closer to the 0.8685 resistance area. The weak UK inflation data released on Wednesday is hampering any meaningful GBP recovery.

Soft UK inflation raises hopes of BoE rate cuts

Consumer prices decelerated well below expectations in November in the UK, with the yearly CPI dropping below the 4% threshold for the first time in two years. 

These figures have put into question the BoE’s hawkish rhetoric, boosting hopes that the bank might start cutting rates as soon as May, which has pushed the Sterling lower across the board.

The Euro, however, is facing hurdles of its own. The downbeat macroeconomic data suggests a scenario of weak growth with falling inflation which is fuelling investors’ bets on rate cuts in early 2024.

In this scenario, the hawkish comments by ECB Vice President De Guindos in an interview released earlier today have had a marginal impact on the pair.

Technically speaking, the immediate bias remains bullish although the 0.8680/90 area might offer a strong resistance. This is the 61.8% retracement of the late-November sell-off and a common target for corrective moves.

Technical levels to watch