EUR/GBP pares the biggest daily loss in two weeks around 0.8750 ahead of German inflation

EUR/GBP prints mild gains around 0.8750 as it licks its wounds during Thursday’s sluggish Asian session. In doing so, the cross-currency pair pares the biggest daily loss in a fortnight as traders await the key inflation data from Germany.

EUR/GBP pair’s latest weakness could be linked to the tussles between UK Chancellor of the Exchequer Kwasi Kwarteng and the Bank of England, informally called the “Old Lady”.

“Old Lady will be to blame if UK markets slide next week,” said UK’s Kwarteng, which in turn exerted additional pressure on the BOE to announce a stronger rate hike. As a result, the money market bets suggest a full percentage rate lift by the BOE during the next monetary policy meeting.

Also fueling the GBP could be the comments from Bank of England policymaker Catherine Mann who stated that tackling inflation will hurt the UK more than others. On the same line could be the UK PM Liz Truss’ determination to keep the widely criticized mini budget despite knowing that it will post a £60 billion funding hole. "I am still inclined to believe that a significant monetary policy response will be required in November," Bank of England (BOE) Chief Economist Huw Pill said on Wednesday, as reported by Reuters.

On Wednesday, chatters that the BOE will extend its gilt purchases triggered the GBP’s upside before the “Old Lady mentioned that gilt purchases are a temporary program and that they will be unwound in a smooth and orderly fashion. The news reversed Sterling’s initial gains and recollected downbeat UK statistics to challenge the EUR/GBP bulls before the EUR weakness favored the pair’s upside momentum.

Further, the mixed data from the UK also weighed on the EUR/GBP prices. That said, UK Gross Domestic Product (GDP) dropped to -0.3% MoM in August versus 0.0% expected and 0.2% prior whereas the Industrial Production (IP) and Manufacturing Production (MP) also slumped into the negative territory during the stated month.

Additionally, a survey conducted by YouGov and consultancy the Centre for Economics and Business Research stated that the UK Consumer Confidence gauge fell to 97.7 in September from 98.8. The detail also stated that British consumer confidence fell due to a steep deterioration in homeowners’ attitudes toward their house values.

Moving on, Germany’s Harmonized Index of Consumer Prices (HICP) figures for September, expected to confirm initial readings of 10.9% YoY, will be crucial for the EUR/GBP pair traders amid the fresh covid woes from the bloc. Also likely to weigh on the prices could be the ongoing energy crisis in the old continent.

Technical analysis

EUR/GBP remains capable of refreshing the yearly high, currently around 0.9255, unless breaking a five-week-old support line, near .8710 by the press time.