EUR/GBP attracts some buyers above the 0.8500 mark following UK CPI, PPI data

• EUR/GBP holds positive ground around 0.8523 after the downbeat UK January inflation data. 
• UK Consumer Price Index (CPI) rose 4.0% YoY in January vs. 4.2% expected. 
• Traders anticipate 118 basis points (bps) rate cuts in 2024, down from the 145 bps expected at the start of February.
• The Eurozone GDP growth numbers for Q4 and December Industrial Production will be closely watched by traders on Wednesday. 

The EUR/GBP cross gains traction above the 0.8500 psychological mark during the early European trading hours on Wednesday. The weaker-than-expected UK economic data exerts some selling pressure on the Pound Sterling (GBP) and acts as a tailwind for EUR/GBP. The cross currently trades near 0.8523, adding 0.21% on the day. 

The latest data from the Office for National Statistics on Wednesday showed that the UK Consumer Price Index (CPI) dropped 0.6% MoM in January from a rise of 0.4% in December, while the annual headline CPI rose 4.0% YoY, weaker than the expectation of 4.2%. The Core CPI, excluding volatile food and energy prices, climbed 5.1% YoY in January compared to the estimation of 5.2%

The European Central Bank (ECB) chief economist Philip Lane said on Tuesday that the number and the exact timing of rate cuts will depend on how much progress the ECB makes towards its inflation target. Meanwhile, ECB Governing Council member Pablo Hernandez de Cos said that the central bank’s new outlook for inflation and economic growth in March will be pivotal in deciding when to begin easing monetary policy. 

The ECB maintained the benchmark rates steady at a record high of 4% at its January meeting. The markets expect the first rate cuts in April or June. On Monday, traders trimmed bets on the expectation of rate cuts from the ECB, anticipating 118 basis points (bps) cuts in 2024, down sharply from the 145 bps expected at the start of February.

Later on Wednesday, the Eurozone GDP growth numbers for Q4 and December Industrial Production will be due. The UK GDP growth numbers for Q4 will be released on Thursday. These events could trigger volatility in the market and give a clear direction to the EUR/GBP cross.