EUR/GBP trims losses below the mid-0.8500s, the upside seems limited amid BoE's hawkish guidance

The EUR/GBP cross gains ground below the mid-0.8500s during the early European session on Friday. Nonetheless, the upside of the cross seems limited. The Bank of England (BoE) held rates steady at its January meeting on Thursday, and BoE Governor Andrew Bailey said more evidence of inflation is needed before lowering rates. At press time, the cross is trading at 0.8531, gaining 0.03% on the day. 

On Thursday, six out of nine members of the BoE’s Monetary Policy Committee voted to keep rates at a 15-year high of 5.25%. During his speech, UK central bank Governor Andrew Bailey stated that the BoE needs to see more evidence that inflation is on the course of the 2% target before they can lower interest rates. Furthermore, the sticky inflation and wage growth in the UK economy might convince the BoE to keep rates on hold longer than the European Central Bank (ECB). This, in turn, might lift the Pound Sterling (GBP) and act as a headwind for the EUR/GBP cross. 

On the Euro front, the Eurozone Harmonized Index of Consumer Prices (HICP) eased to 2.8% YoY in January from 2.9% in December, in line with market expectations. Meanwhile, the Core inflation dropped to 3.3% YoY in the same month from the previous reading of 3.4%, above the market consensus of 3.2%. Investors anticipate that the ECB will probably cut interest rates in April, contributing to the Euro's recent weakness.

Later on Friday, the French Industrial Output and Budget Balance for December will be due. Also, BoE Chief Economist Huw Pill is set to speak on Friday.