EUR/GBP softens despite cooling UK inflation data

EUR/GBP trades on the back foot on Wednesday as the Euro (EUR) comes under pressure following media reports that Christine Lagarde may step down as head of the European Central Bank (ECB) before her term ends in October 2027. At the time of writing, the cross is trading near 0.8723, down roughly 0.17% on the day.

The Financial Times report briefly added uncertainty around the Eurozone monetary policy outlook. However, an ECB spokesperson told Euronews that the claims are untrue, stating, “President Lagarde is totally focused on her mission and has not taken any decision regarding the end of her term.”

The latest speculation follows last week’s surprise announcement by François Villeroy de Galhau, Governor of the Bank of France, who said he will step down in June before the end of his term. Speaking on Wednesday, Villeroy stated that the ECB has won the battle against inflation, adding that inflation in France is not too low. He also said that his decision to leave early is personal.

Meanwhile, the British Pound (GBP) holds firm across the board after mixed inflation data from the United Kingdom. The soft inflation figures follow weaker labour market data released on Tuesday. Taken together, the latest releases have strengthened the case for additional rate cuts from the Bank of England (BoE).

The Consumer Price Index fell 0.5% MoM in January, matching expectations and reversing December’s 0.4% increase. On an annual basis, CPI slowed to 3%, in line with forecasts and down from 3.4%. Core CPI eased to 3.1% YoY, meeting market expectations and slipping from 3.2% in December.

Producer price data painted a mixed picture. Output PPI was flat on a monthly basis in January at 0.0%, missing expectations of a 0.2% rise but improving from December’s -0.1% decline. On an annual basis, Output PPI eased to 2.5% YoY, down from 3.1%.

The Retail Price Index (RPI) dropped 0.5% MoM in January, reversing December’s 0.7% increase. On a yearly basis, RPI eased to 3.8%, slightly below the 3.9% forecast and down from 4.2% in the prior month.

On the monetary policy front, economists expect the BoE to cut its benchmark rate at its March meeting, with nearly two more reductions seen later this year. In contrast, the ECB is widely expected to keep rates on hold through 2026 as inflation in the Eurozone remains relatively steady.

Attention now turns to Friday’s economic releases, including preliminary PMI data from both the Eurozone and the United Kingdom, along with UK Retail Sales figures.