EUR/GBP extends its downward movement and approaches 0.8630 awaiting German inflation

• EUR/GBP undergoes a major correction and approaches 0.8630 pending German HICP data for September.
• German annual HICP inflation is expected to soften despite rising energy prices.
• The British economy faces headwinds from a stubborn inflation outlook and economic problems.

The EUR/GBP cross falls vertically to around 0.8630 during the European session. The pair faces selling pressure ahead of Germany’s preliminary Harmonized Index of Consumer Prices (HICP) data for September, due at 12:00 GMT.

German annual HICP inflation is estimated to fall sharply to 4.5% in September, from 6.4% in August. Core HICP is likely to rise 0.3% in September, up from a 0.4% acceleration in August. The overall Eurozone HICP is expected to increase by 4.5% annually in September, a slowdown from the 5.2% increase in August.

Inflationary pressures in the German economy are expected to ease despite rising energy prices, which indicate a sharp slowdown in consumer spending momentum. Last week, European Central Bank (ECB) President Christine Lagarde reiterated the need to keep interest rates sufficiently restrictive for longer, as inflation remains high despite progress in the slowdown. Lagarde highlighted the risk of a tight labor market that could keep inflationary pressures intact.

Later, investors’ attention will turn to the Eurozone HICP data, due to be released on Friday.

Regarding the British Pound, fears of a slowdown in the British economy have increased, as the services PMI was in contraction territory. Middle-class families have cut spending on services as high inflation reduces real incomes.