EUR/GBP treads water near 0.8450 following the releases of German inflation, UK labor data

EUR/GBP remains subdued following the inflation data release from Germany.
German Harmonized Index of Consumer Prices maintained a 2.0% YoY increase in August, as expected.
The ILO UK Unemployment Rate eased to 4.1% in the three months leading up to July, down from 4.2% in June.

Akhtar Faruqui FXStreet

EUR/GBP depreciates for the second successive session, trading around 0.8440 during Tuesday’s European hours. The Euro faces challenges against the Pound Sterling (GBP) following the inflation data from Germany.

Germany's Harmonized Index of Consumer Prices (HICP) maintained a 2.0% year-on-year increase in August, in line with expectations. The monthly index showed a steady decline of 0.2%, also as forecasted. Similarly, the Consumer Price Index (CPI) remained stable at 1.9% year-on-year in August, meeting market expectations.

The recent headline inflation from the Eurozone remains near 2%, coupled with mixed Gross Domestic Product (GDP) data has reinforced expectations of a potential rate cut by the European Central Bank (ECB) at upcoming Thursday's policy meeting.

The Pound Sterling receives support from the mixed employment data from the United Kingdom (UK). ILO Unemployment Rate eased to 4.1% in the three months to July, following June’s 4.2% print, the data published by the Office for National Statistics (ONS).

UK Claimant Count Change showed that the change in the number of unemployed people fell to 23.7K in August, falling short of the market expectations of 95.5K and the previous 102.3K readings. Average Earnings Including Bonus (3Mo/Yr) came in at 4.0% in July, against the expected 4.1% and prior 4.6% readings.

Bank of England (BoE) policymakers remain concerned about persistent inflation, particularly within the services sector. A slowdown in wage growth would ease these concerns and likely increase market speculation about potential interest rate cuts by the BoE in September. The focus now turns to UK GDP numbers due on Wednesday.

Inflation FAQs

What is inflation?

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%.

What is the Consumer Price Index (CPI)?

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.

What is the impact of inflation on foreign exchange?

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.

How does inflation influence the price of Gold?

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.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

AUD/USD eyes 0.7150 barrier nine-day EMA

AUD/USD inches higher after registering modest losses in the previous day, trading around 0.7130 during the Asian hours. The technical analysis of the daily chart indicates that the pair is moving sideways within the rectangle pattern, suggesting a consolidation as neither the bulls nor the bears have enough momentum to take control of the market.

USD/JPY trades below 160.00 intervention threshold; bullish bias intact

The USD/JPY pair attracts some sellers during the Asian session amid fears that authorities will step in again to prop up the Japanese Yen. Furthermore, the Israel-Lebanon truce prompts some profit-taking around the US Dollar and exerts downward pressure on the currency pair.

Gold extends rebound to $4,500 as US yields edge lower

Gold (XAU/USD) preserves its recovery momentum following Wednesday's slide and tests the $4,500 mark in the second half of the day on Thursday. While US-Iran uncertainty remains, easing tensions between Lebanon on Israel seems to be helping the market mood improve, causing the USD to lose strength alongside falling US T-bond yields and opening the door for a decisive rebound in XAU/USD.

Bitcoin’s massive storm is back: Why the sell-off is far from over

Bitcoin price action over the last few weeks has felt less like a normal, healthy correction and more like a slow grinding crash that continues to wreak havoc on holdings and trading accounts. And everything suggests that the dramatic crash isn’t over.

Nonfarm payrolls: Testing the limits of Fed policy patience

The upcoming nonfarm payrolls report for May will provide the final update on the US labor market before Kevin Warsh attends his first policy meeting as the new Fed Chair later this month.

Recession on paper: What really moves the Canadian Loonie now?

Statistics Canada handed the headline writers a gift and the analysts a headache. Real GDP shrank 0.1% on an annualized basis in the first quarter, and with the fourth quarter of 2025 revised down to a 1.0% contraction, that is two negative quarters in a row, the textbook definition of a technical recession and Canada's first since the pandemic.