EUR/GBP edges lower toward 0.8350 ahead of Eurozone HICP inflation data

EUR/GBP loses ground despite a less-dovish sentiment surrounding the ECB following the robust Eurozone GDP data.
Traders await Eurozone Harmonized Index of Consumer Prices (HICP) data on Thursday.
UK budget includes £40 billion in tax increases aimed at reducing public finance deficits and enhancing funding for public services.

EUR/GBP trades slightly lower during early European hours on Thursday near 0.8360, following strong gains in the previous session. This downside may be limited, as the Euro could find support from investors scaling back expectations of a large rate cut by the European Central Bank (ECB) in December.

This sentiment shift regarding the ECB’s policy outlook comes after stronger-than-expected economic data from the Eurozone and Germany released on Wednesday. Investors will keep an eye on the Eurozone Harmonized Index of Consumer Prices (HICP) on Thursday.

According to preliminary estimates from Eurostat, the seasonally adjusted Eurozone Gross Domestic Product (GDP) expanded by 0.4% quarter-over-quarter in Q3, surpassing the expected 0.2% increase. Year-over-year, the Eurozone's GDP grew by 0.9%, above the forecasted 0.8% growth.

In Germany, GDP rose by 0.2% QoQ in Q3, recovering from a 0.3% decline in Q2 and exceeding expectations of a 0.1% contraction, based on preliminary data. Additionally, Germany’s Consumer Price Index (CPI) showed an annual inflation rate of 2.0% in October, a three-month high, up from 1.6% in September and above the projected 1.8%, according to preliminary estimates.

The EUR/GBP cross also gained support as the Pound Sterling (GBP) weakened following the UK Labour government’s first budget announcement on Wednesday. This budget includes £40 billion in tax hikes aimed at reducing public finance gaps and bolstering public services, as reported by CNBC. A major revenue source in the budget is a rise in National Insurance (NI) contributions, a tax on earnings paid by employers.

Furthermore, traders are likely watching an upcoming keynote address by Bank of England (BoE) Deputy Governor Sarah Breeden at a conference hosted by the Hong Kong Monetary Authority and Bank for International Settlements on the “Opportunities and Challenges of Emerging Technologies in the Financial Ecosystem.”

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.