EUR/GBP gains ground above 0.8700 on hotter Eurozone inflation data

EUR/GBP drifts higher to around 0.8710 in Wednesday’s early European session.
Eurozone inflation data provides some support to the Euro.
Traders dialed back BoE rate cut bets amid surging oil prices.

Lallalit Srijandorn FXStreet

The EUR/GBP cross holds positive ground near 0.8710 during the early European session on Wednesday. The Euro (EUR) edges higher against the Pound Sterling (GBP) following hotter-than-expected Eurozone inflation data. Traders will take more cues from the Eurozone Retail Sales report, which will be released later on Thursday.

The Eurozone Harmonized Index of Consumer Prices (HICP) rose 1.9% YoY in February, compared to 1.7% in January, according to a flash estimate from Eurostat on Tuesday. The core HICP, which excludes volatile components like food, energy, alcohol, and tobacco, climbed 2.4% YoY in February. This figure came in above the market consensus and the previous reading of 2.2%.

The European Central Bank (ECB) has kept the deposit rate at 2.0% since June 2025. While a monetary policy is expected to remain unchanged at the March meeting, traders now see a 50% chance of a rate hike later this year due to soaring energy prices. This, in turn, could lift the Euro against the Pound Sterling in the near term.

Surging oil and gas prices due to Middle East conflicts have fueled fresh inflation fears, causing traders to scale back bets on further easing by the Bank of England (BoE). BoE Monetary Policy Committee (MPC) member Alan Taylor said on Monday that it is too soon to ascertain the impact of rising oil prices on the UK inflation and growth outlook; however, the central bank is closely tracking the event.

The probability of a BoE rate reduction later this month has also plunged, from about 80% last week to less than 20% now, according to Bloomberg.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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