Anna 
EUR/GBP faced continued downward pressure, retreating from five-month highs and trading around 0.8690 in early European trading on Wednesday. The pair’s decline followed the release of Eurozone consumer inflation data by Eurostat on Tuesday, which fell short of market expectations.
The preliminary adjusted inflation rate for the Eurozone dropped to 2.9% in October, down from the previous value of 4.3%, missing market expectations of 3.1%. Moreover, the seasonally adjusted GDP growth for the third quarter was reported at 0.1% year-on-year, falling short of the anticipated 0.2%.
The significant drop in consumer prices aligns with the belief in the market that the European Central Bank (ECB) is unlikely to raise interest rates further. Furthermore, the looming risk of a recession could continue to exert pressure on the euro, impacting EUR/GBP.
Nonetheless, ECB officials have maintained the possibility of further monetary policy tightening. Joachim Nagel, a member of the European Central Bank’s Governing Council, emphasized, “Our tightening monetary policy is working, but we must not relax prematurely.” He emphasized that interest rates should remain at elevated levels for an extended period.
In the short term, the pound may encounter challenges as investors anticipate that the Bank of England will keep interest rates unchanged at 5.25% in the upcoming meeting on Thursday. Concerns about potential slowing UK economic growth are driving this expectation.
Investors will be closely watching for guidance on future interest rates and inflation from the Bank of England. Prime Minister Rishi Sunak pledged to halve inflation to 5.4% by the end of the year, but this commitment appears increasingly challenging given that annual price growth stood at 6.7% in September.
