The EUR/GBP will be in focus with Wednesday’s CPI inflation data after a euro rally.
EURGBP – Daily Chart
The EURGBP found support at the lows of September and January, with another strong rally to test the resistance at 0.8745.
The UK inflation data will be released at 2 pm HKT, with analysts expecting a drop to -0.5% from 0.4%. That would take the annual reading to 3.1% from 3.1% and may hurt the British pound.
Despite slowing inflation, the Bank of England is still expected to cut interest rates in March after slower jobs data on Tuesday.
“The UK jobs market is still cooling, even if much of the weakness is concentrated in consumer-facing industries that were most affected by last year’s government policy changes,” a report from ING said.
“Wage growth has further to fall, and that’s why we expect Bank of England rate cuts in March and June – and we don’t rule out further moves thereafter,” analysts said.
The latest trends suggest the euro rally could continue after finding its recent base. The unemployment rate is still rising, at 5.2%, almost a percentage point higher than a year ago. Weakness is evident in consumer-facing industries, such as hospitality, due to last year’s sizeable tax and living wage increases. Hospitality employment is now down by almost 3% since the start of 2025.
ING sees the unemployment rate rising to 5.5% this year, which could be a drag on wage growth and should confirm the BoE’s lower interest rates. City of London markets have priced in a 75% chance that the bank lowers interest rates to 3.5% at its next meeting, up from 69% on Monday. Two rate cuts are expected by Christmas, bringing the benchmark rate down to 3.25%.
