EUR/GBP recovers some lost ground below the 0.8600 mark ahead of the UK CPI, Eurozone GDP

The EUR/GBP cross recovers some lost ground but remains capped below the 0.8600 mark during the early Asian session on Wednesday. Market participants await key data from the United Kingdom and the Eurozone. The UK Consumer Price Index (CPI) in July and Eurozone Gross Domestic Product (GDP) will be released later in the day, and it could trigger volatility in the cross.

The Zentrum für Europäische Wirtschaftsforschung reported on Tuesday that the Eurozone ZEW Survey Economic Sentiment for August came in at -5.5, better than the estimation of -12 and the previous reading of -12.2. Meanwhile, German ZEW Survey Economic Sentiment for August improved to -12.3 versus -14.4 expected and -14.7 prior. On the same line, the German ZEW Survey Current Situation declined to -71.3, worse than expectations of -63 and the previous reading of -59.5.

The European Central Bank's (ECB) monthly Economic Bulletin revealed last week that the Eurozone’s inflation is still predicted to be too high for too long, and the prospects for economic growth and inflation are still uncertain. According to the Reuters poll, the target inflation rate of 2.0% will not be reached until at least 2025, and more than 90% of economists surveyed anticipate no rate cuts before the second quarter of 2024.

On the UK docket, the number of employed declined by 66,000, against market expectation of an increase of 75,000. The Average Earnings excluding bonuses, increased 7.8% YoY in the three months to June. This figure indicates the highest annual growth rate since records began in 2001, while Average Earnings including bonuses, reached 8.2%, the fastest pace since the coronavirus pandemic period. Finally, the unemployment rate increased to 4.2% from 4%.

As the UK economy is fragile and the interest rate is at a 15-year high of 5.25%, market participants are cautious about the BoE's move. The aggressive monetary policy could negatively affect the British economy. This, in turn, might cap the upside in the Pound Sterling and act as a tailwind for the EUR/GBP cross.

Moving on, the Eurozone Gross Domestic Product (GDP) Q2 and Harmonized Index of Consumer Prices for July will be released later this week. On the UK docket, the UK Consumer Price Index (CPI) and Retail Sales MoM for July will be due. The data will be critical for determining a clear movement for the EUR/GBP cross.