- EUR/GBP gathers gains ground near 0.8570 in Wednesday’s early European session.
- The UK annual CPI increased 2.2% in July vs. 2.3% expected.
- Investors will keep an eye on the Eurozone Q2 GDP data on Wednesday.
The EUR/GBP cross edges higher to near 0.8570 during the early European session on Wednesday. The British Pound (GBP) loses traction after the UK Consumer Price Index (CPI) inflation data for July came in below economists' expectations. Investors await the Eurozone Gross Domestic Product (GDP) for the second quarter (Q2), which is due later in the day.
Data released by the Office for National Statistics showed on Wednesday that the UK CPI rose 2.2% YoY in July, accelerating from the 2.0% in June. Still, this figure was below the market consensus of 2.3%. Meanwhile, the core CPI, excluding volatile food and energy items, climbed 3.3% YoY in July versus 3.5% prior, below the forecast of 3.4%. The softer UK CPI inflation report exerts some selling pressure on the Pound Sterling as it has triggered the expectation of an interest-rate cut by the Bank of England (BoE) in September.
On Thursday, traders will shift their attention to the UK Gross Domestic Product (GDP) for the second quarter (Q2), which is projected to expand 1.0% year-on-year. On a quarterly basis, the GDP number is forecasted to grow 0.6% in Q2.
On the Euro front, the Eurozone Gross Domestic Product (GDP) for the second quarter (Q2) will be published. The Eurozone economy is estimated to grow 0.3% QoQ and 0.6% YoY in Q2. A weaker-than-expected GDP growth numbers could weigh on the Euro (EUR) and cap the upside for EUR/GBP.
(This story was corrected on August 8 at 08:00 GMT to say, in the title, that UK inflation rose less than expected, not eased. It was also corrected to say, in the second paragraph, that the next BoE meeting will be in September, not August. It was also corrected to say, in the last paragraph, that a weaker Euro could cap the upside potential for the EUR/GBP pair, not its downside.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
Gold gives away some gains, slips back to $2,980
Gold retraced from its earlier all-time highs above the key $3,000 mark on Friday, finding a footing around $2,980 per troy ounce. Profit-taking, rising US yields, and a shift to a risk-on environment seem to be putting the brakes on further gains for the metal.
EUR/USD remains firm and near the 1.0900 barrier
EUR/USD is finding its footing and trading comfortably in positive territory as the week wraps up, shaking off two consecutive daily pullbacks and setting its sights back on the pivotal 1.0900 mark—and beyond.
GBP/USD remains depressed, treads water in the low-1.2900s
GBP/USD is holding steady in consolidation territory after Friday’s opening bell on Wall Street, hovering in the low-1.2900 range. This resilience comes despite disappointing UK data and persistent selling pressure on the USD.
Crypto Today: BNB, OKB, BGB tokens rally as BTC, Shiba Inu and Chainlink lead market rebound
Cryptocurrencies sector rose by 0.13% in early European trading on Friday, adding $352 million in aggregate valuation. With BNB, OKB and BGB attracting demand amid intense market volatility, the exchange-based native tokens sector added $1.9 billion.
Week ahead – Central banks in focus amid trade war turmoil
Fed decides on policy amid recession fears. Yen traders lock gaze on BoJ for hike signals. SNB seen cutting interest rates by another 25bps. BoE to stand pat after February’s dovish cut.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.