Eurozone strong inflation keeps EUR/GBP above 0.8550, HCOB PMI eyed

• EUR/GBP snaps two-day losing streak due to upbeat Eurozone inflation.
• Eurozone headline inflation rose by 0.6% against the expectations of 0.1% decline.
• Sterling Pound traders seek more cues on BoE's policy decision amid the UK's challenging economic conditions.

EUR/GBP treads waters to snap the two-day losing streak, trading higher around 0.8560 during the Asian session on Friday. The pair is experiencing upward support attributed to the Eurozone's strong preliminary Harmonized Index of Consumer Prices (HICP) for August.

According to Eurostat's report, monthly headline inflation expanded by 0.6%. This was a sharp increase from investor expectations, as they had anticipated a deflation of 0.1% similar to what was recorded in July. Meanwhile, the annual headline Harmonized Index of Consumer Prices (HICP) remained stable at 5.3%, contrary to expectations of a slowdown to 5.1%.

Core Harmonized Index of Consumer Prices (MoM) that excludes volatile food and oil prices rose at a rate of 0.3% as per market expectations, swinging from the previous rate of 0.1% decline. On an annual basis, the economic data softened to 5.3% as expected from July’s reading of 5.5%.

The Euro buyers will seek further cues on upcoming monetary policy decisions by the European Central Bank (ECB), following the persistent inflation in the Eurozone. Market participants focus next on the HCOB Manufacturing PMI (Aug) scheduled to be released on Friday, which is expected to remain consistent as reported in July.

Moreover, the stubborn inflation reinforces the possibility of a 25 basis points (bps) interest rate hike in the upcoming meeting in September, which could provide upward support to the EUR/GBP pair. ECB policymaker Robert Holzmann stated that the rates have not reached their peak level, and he indicated the potential for a couple more rate hikes.

On the other side, the EUR/GBP traders are adopting a cautious approach amid the UK's challenging economic conditions and the hawkish tone surrounding the possibility of a 25 basis points (bps) interest rate increase during the Bank of England's (BoE) September meeting. Additionally, BoE Chief Economist Huw Pill stated on Thursday supported the need for sustained restrictive policy over an extended period.