EUR/GBP falls toward 0.8500 ahead of EMU Harmonized Index of Consumer Prices

ECB policymakers are hesitant to pursue a rate-cut path due to concerns that price pressures could reaccelerate.
Germany’s Producer Price Index fell by 0.8% YoY in July, following the previous 1.6% decrease.
Last week's economic reports support the case for the BoE to maintain the rate at 5.0% in September.

Akhtar Faruqui FXStreet

EUR/GBP retraces its recent gains, trading around 0.8520 during the early European hours on Tuesday. Investors anticipate that the European Central Bank (ECB) will gradually reduce interest rates. ECB policymakers have hesitated to commit to a specific rate-cut path due to concerns that price pressures could reaccelerate.

Germany’s Producer Price Index (PPI) declined by 0.8% year-over-year in July, in line with expectations, following the previous decline of 1.6%. Meanwhile, the monthly index showed a 0.2% increase, also as anticipated. Investors have shifted their focus on the Harmonized Index of Consumer Prices (HICP) data from the European Monetary Union (EMU) scheduled for release later in the day.

Last week's UK inflation and employment reports have strengthened the case for the Bank of England (BoE) to maintain the interest rate at 5.0% at its upcoming September meeting. Finance Minister Rachel Reeves emphasized that the latest data highlights the challenges facing the new government, reiterating her position that tough decisions will be needed to improve the country's economic fundamentals, according to Reuters.

Additionally, Rupert Thompson, Chief Economist at IBOSS, remarked, “The BOE is most likely to leave rates unchanged at their next meeting in September, with the next cut likely delayed until November.” The anticipation of further rate cuts by the BoE could put pressure on the Pound Sterling (GBP) in the near term.

Traders are expected to closely monitor the Purchasing Managers Index (PMI) data from the Chartered Institute of Procurement & Supply and S&P Global, scheduled for release on Thursday. This report could offer additional insights into the UK’s economic conditions, potentially influencing the Bank of England's policy stance.

Economic Indicator

Harmonized Index of Consumer Prices (MoM)

The Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The MoM figure compares the prices of goods in the reference month to the previous month. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

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