The EUR/GBP cross remains supported around 0.8710 in early European trading on Wednesday, with the Euro gaining modest ground against the Pound Sterling after stronger-than-expected inflation data from the Eurozone. Investors now await the upcoming Eurozone Retail Sales report for additional direction.
Flash estimates from Eurostat showed that the Harmonized Index of Consumer Prices (HICP) increased 1.9% year-over-year in February, up from 1.7% in January. Core HICP, which strips out volatile items such as food and energy, accelerated to 2.4% annually, exceeding both the prior reading of 2.2% and market forecasts. The firmer inflation data has reinforced expectations that price pressures in the bloc remain sticky, lending support to the common currency.
The policy outlook at the European Central Bank has consequently shifted slightly. The ECB has kept its deposit rate steady at 2.0% since June 2025, and while no change is anticipated at the March meeting, traders now assign roughly a 50% probability to a rate hike later this year. Rising energy costs have intensified inflation concerns, strengthening the case for a more cautious stance on monetary easing and potentially underpinning the Euro in the near term.
Meanwhile, the Pound is navigating its own challenges. Escalating oil and gas prices linked to tensions in the Middle East have also complicated the outlook for the Bank of England. Policymakers are reassessing the balance between growth risks and inflation pressures. MPC member Alan Taylor recently noted that it remains premature to determine the full impact of higher energy prices on the UK economy, though the central bank is closely monitoring developments.
According to Bloomberg, market expectations for a BoE rate cut this month have dropped sharply, from around 80% last week to below 20% currently. This rapid repricing reflects heightened uncertainty and shifting policy bets on both sides, leaving EUR/GBP supported but sensitive to incoming data and energy market dynamics.
Trade idea:
Buy dips toward 0.8670 targeting 0.8780; stop below 0.8630 in case UK data strengthens and reverses recent Euro momentum.