EUR/GBP finds support near 0.8550 after steady Eurozone HICP

The EUR/GBP pair discovers support near 0.8550 propelled by the sticky Eurozone preliminary Harmonized Index of Consumer Prices (HICP) for August.

Eurostat reported that monthly headline inflation expanded at a higher pace of 0.6% while investors anticipated a deflation of 0.1% as recorded for July. Annual headline HICP remained sticky at 5.3% against expectations of a deceleration to 5.1%.

Core inflation that excludes volatile food and oil prices expanded at a 0.3% pace as expected by market participants. In July prices of core goods were softened by 0.1%. On an annual basis, the economic data softened to 5.3% as expected from July’s reading of 5.5%.

Stubborn Eurozone inflation indicates that the European Central Bank (ECB) is not in a position to discuss pausing the rate-tightening spell. ECB policymaker Robert Holzmann said that “we are not yet at the highest level for rates," adding that "another hike or two are possible.” He further added, “As long as the labor market remains hot, it is difficult to convince workers to accept lower wage rises.”

After Eurozone inflation, investors will shift focus to the Manufacturing PMI for August, which will be published on Friday at 08:00 GMT. The economic data is expected to remain steady at 43.7.

On the Pound Sterling front, improvement in the United Kingdom’s business confidence indicates that recession fears are easing. Lloyds Bank Business Barometer survey showed that business confidence jumped by 10 points in August to 41%, its highest since Russia’s invasion of Ukraine. The survey also showed that businesses will keep raising job pay and prices of goods.

About the interest rate guidance, Bank of England (BoE) Chief Economist Huw Pill said on Thursday that policy must be sufficiently restrictive for long enough. The BoE is widely expected to raise interest rates further by 25 basis points (bps) in its September monetary policy to 5.50%.