EUR/GBP finds support near 0.8550, focus on UK inflation data

• EUR/GBP finds intermediate support near 0.8550, the downtrend remains favorable.
• The ECB's pace of monetary policy easing is expected to be more aggressive than that of the BoE.
• Investors await UK inflation data.

The EUR/GBP pair finds a temporary bottom near 0.8550 in the European session on Monday. The cross remains bearish, as investors expect that the pace at which the European Central Bank (ECB) reverses its restrictive monetary policy will be more aggressive than that of the Bank of England (BoE).

A rate cut by the ECB is expected at the June meeting. Those responsible for the ECB consider that inflation is on track to return to the desired rate of 2%. Late in the Asian session, Martins Kazaks, head of monetary policy at the ECB, stated that “it is quite likely that in June we will start cutting rates,” as reported by Bloomberg. However, he warned against aggressively cutting interest rates and advised following a gradual approach.

Kazaks warned against aggressively cutting interest rates as it could reignite price pressures again. Although some policymakers still hope that the ECB will have room to cut interest rates at the July meeting as well.

In the UK, investors are focused on April Consumer Price Index (CPI) data, due to be released on Wednesday. The UK's Office for National Statistics (ONS) is expected to show that the annual headline CPI fell to 2.1% from the previous reading of 3.2%. The core CPI, which excludes volatile items, is estimated to have softened to 3.7% from 4.2% in April.

The sharp decline in UK inflation data will boost prospects for BoE rate cuts, which traders expect the central bank could initiate as early as the June or August meeting. For his part, BoE deputy governor Ben Broadbent stated in his comments at Monday's session in London that he sees a rate cut likely in the summer. Broadbent added that rates will become less restrictive at some point.