EUR/GBP trades around 0.8550 on Thursday, down 0.21% on the day, as the Euro (EUR) remains under pressure against the British Pound (GBP) after another batch of data reinforced expectations of a more cautious European Central Bank (ECB).
A sharper-than-expected slowdown in Eurozone inflation has prompted investors to reduce the odds of another interest rate hike at the ECB’s July meeting, limiting demand for the shared currency
Data released on Wednesday showed that the Eurozone Harmonized Index of Consumer Prices (HICP) eased to 2.8% YoY in June from 3.2% previously, below market expectations of 3%. Core HICP, which excludes volatile items, also slowed to 2.4% YoY from 2.6% in May, reinforcing expectations that underlying price pressures continue to moderate. On Thursday, the Eurozone Unemployment Rate held steady at 6.2% in May, matching the revised reading from the previous month and coming in below market expectations of 6.3%.
Although the resilience of the labor market remains supportive for the economy, it was not enough to offset the bearish impact of the inflation data on monetary policy expectations. Comments from ECB officials also highlighted diverging views. Belgian central bank Governor Pierre Wunsch said he does not support further monetary policy tightening, arguing that inflation surprises ahead of the July meeting are more likely to be on the downside.