Eurozone inflation fell to 2.8% YoY in June, below expectations, reducing pressure on the ECB to raise rates further.
The EUR/GBP pair declined to around 0.8565 in early European trading Thursday, driven by softer Eurozone inflation data. The Harmonized Index of Consumer Prices (HICP) dropped to 2.8% year-over-year in June, down from 3.2% in May and below the 3.0% consensus forecast.
The weaker inflation print has eased expectations for further European Central Bank (ECB) rate hikes this year. Analysts suggest the data may lower the threshold for the ECB to pause rate increases in September, with energy price impacts described as limited. Traders are now awaiting speeches from ECB President Christine Lagarde and Bank of England Governor Andrew Bailey on Friday.
The British Pound found support from UK political developments, as likely next Prime Minister Andy Burnham pledged adherence to fiscal rules. While this provided near-term relief, markets remain cautious about future budget decisions that could affect public spending.