Ella 
During the Asian session on Friday, EUR/GBP fluctuated higher around 0.8560, ending a two-day losing streak. A strong preliminary reading of the Harmonized Index of Consumer Prices (HICP) for the euro zone in August provided upside support for the pair.
Headline inflation rose by 0.6% on a monthly basis, according to the Eurostat report. That beat investors’ expectations by a wide margin, as they had expected deflation of 0.1%, similar to what happened in July. Meanwhile, the annual headline Harmonized Index of Consumer Prices (HICP) held steady at 5.3%, contrary to expectations for a slowdown to 5.1%.
The Harmonized Index of core consumer prices (monthly), which strip out volatile food and oil prices, rose 0.3%, in line with market expectations and volatile from a 0.1% decline earlier. On an annualized basis, economic data slowed to 5.3% from 5.5% in July.
Traders will be looking for further clues on the European Central Bank’s (ECB) upcoming monetary policy decision following persistent inflation in the euro zone. Market participants will next focus on the Eurozone HCOB manufacturing PMI (August) due on Friday, which is expected to be in line with the July report.
Additionally, stubborn inflation reinforces the likelihood of a 25 basis point (bps) rate hike by the ECB at its upcoming September meeting, which could provide upside support for EUR/GBP. European Central Bank policymaker Robert Holzmann said interest rates have not yet reached their peak levels and said several more increases were possible.
EUR/GBP traders, on the other hand, took a cautious stance amid grim economic conditions in the UK and a hawkish tone at the Bank of England’s (BOE) September meeting that could raise interest rates by 25 basis points (bps). In addition, Huw Pill, chief economist of the Bank of England, expressed support for continued restrictive policies for a longer period of time on Thursday.
