Anna 
In early European trade on Wednesday, the EUR/GBP cross slipped below the psychological 0.8600 threshold, driven by favorable UK inflation figures for December. The pair found initial support around the daily low of 0.8580, while a key resistance level looms near the 100-day exponential moving average (EMA) on the daily chart. At the time of reporting, EUR/GBP traded at 0.8595, marking a 0.11% decline for the day.
The latest data from the Office for National Statistics revealed that UK consumer price index rose by 4.0% year-on-year in December, surpassing the previous 3.9%. The core consumer price index also exhibited strength, recording a 5.1% year-on-year increase, matching the previous value. Both metrics outperformed market expectations, prompting a rise in demand for Sterling (GBP) and acting as a barrier for the EUR/GBP cross.
On the Eurozone front, Germany reported unexpected improvement in economic sentiment for January. The ZEW economic sentiment index rose to 15.2 from December’s 12.8, surpassing market expectations. However, the current situation index slipped to -77.3, slightly lower than the previous -77.1 and the consensus of -77.0. Eurozone’s confidence index dipped marginally to 22.7 in January, compared to the prior reading of 23.0, but still exceeded the expected 21.9.
Despite higher inflation in Germany and the Eurozone in December, there was no discernible impact on monetary policy expectations. European Central Bank (ECB) officials emphasized uncertainty regarding interest rates and inflation, with plans to commence interest rate cuts in the spring. ECB President Mario Centeno maintained that a rate cut should be part of the discussion, leaving no option off the table.
Looking ahead, market attention shifts to the Eurozone Harmonized Index of Consumer Prices (HICP) for December, slated for release later on Wednesday. Additionally, investors will closely monitor the German Producer Price Index (PPI) and UK retail sales on Friday, with these indicators expected to provide clarity and direction for the EUR/GBP cross.
