EUR/GBP recovers a few pips from weekly low post-Eurozone CPI, keeps the red below 0.8800

The EUR/GBP cross extends this week's sharp retracement slide from a two-year peak and remains under some selling pressure for the fourth straight day on Friday. The steady downfall remains uninterrupted through the first half of the European session and drags spot prices to mid-0.8700s or a fresh weekly low.

The British pound's relative outperformance comes on the back of the Bank of England's intervention in the UK debt market for the second day on Thursday. This, along with an upward revision of the UK Q2 GDP print, further underpins sterling on Friday and continues exerting downward pressure on the EUR/GBP cross. In fact, the UK Office for National Statistics reported this Friday that the economy expanded by 0.2% during the second quarter against a modest 0.1% contraction estimate, easing recession fears.

That said, a combination of factors assists the EUR/GBP cross to find some support at lower levels. Investors remain worried that the new UK government's historic tax cuts could stretch Britain's finances to their limits. This, in turn, threatens to derail the BoE's efforts to contain inflation and create additional economic headwinds. The shared currency, on the other hand, draws support from the weaker US dollar and hotter-than-expected Eurozone CPI, which, in turn, limits the downside for the cross.

According to the official data released by Eurostat on Friday, inflation in the euro area, as measured by the Harmonised Index of Consumer Prices (HICP), climbed to 10% on a yearly basis in September. This marks a notable rise from 9.1% in August and was also higher than market expectations for a reading of 9.7%. This reaffirms markets bets for another jumbo interest rate hike by the European Central Bank and could lend some support to the EUR/GBP cross, warranting caution for aggressive bearish traders.

Technical levels to watch