EUR/GBP moves lower after Eurozone inflation data, but the fall seems limited

• EUR/GBP moves lower in reaction to softer than expected Eurozone inflation numbers.
• Expectations for a series of ECB rate hikes limit euro losses and offer support for the pair.
• Less aggressive comments from BoE chief economist Huw Pill favor the pair’s bulls.

The crossing EUR/GBP continues to fight to capitalize on the move beyond 0.8650 and attracts some sellers during the first half of the European session on Wednesday. The intraday fall accelerates after the publication of the Eurozone consumer inflation figures, softer than expected, and drags the cross to a new daily minimum, around the 0.8620 zone in the last hour.

According to the preliminary report published by Eurostat, the annualized Harmonized Index of Consumer Prices (IPCA) in the euro zone slowed down to a rate of 10.0% year-on-year in November, compared to 10.6% of the previous month. In monthly terms, the IPCA fell 0.1% in November, below estimates of a 1.5% rise. The data could have cooled expectations of more aggressive interest rate hikes by the European Central Bankwhich in turn weighs on the common currency and puts some pressure on the EUR/GBP cross.

However, the President of the ECB, Christine Lagarde, affirmed on Monday that inflation in the region has not peaked and that it runs the risk of being even higher than what is currently expected. This points to a series of interest rate hikes in the future, which should act as a tailwind for the Euro. Also, less aggressive comments from Bank of England (BoE) chief economist Huw Pill could help limit the EUR/GBP slide.

In his speech at an online event, Pill said inflation is expected to fall rapidly in the second half of 2023. and that supply chain problems appear to be improving. Pill too Contrary to market expectations and sees a lower spike in the current tightening cycle. Fundamental background supports the prospects for an extension of the recent EUR/GBP bounce from the 0.8575-0.8570 support zone. That being said, the lack of significant buying warrants some caution for aggressive bulls.

EUR/GBP levels