EUR/GBP strengthens below 0.8550 following UK GDP data

• EUR/GBP holds positive ground near 0.8544 in Wednesday’s early European session. 
• The UK monthly GDP number grew 0.2% MoM in January vs. -0.1% prior, as expected. 
• ECB’s Wunsch said they will have to gamble soon with rate cuts despite the rise of wage inflation and prices. 

The EUR/GBP cross trades on a positive note below the mid-0.8500s during the early European trading hours on Wednesday. The cross drifts higher following the mixed UK data. At press time, EUR/GBP is trading at 0.8544, adding 0.04% on the day. 

The latest data released from the Office for National Statistics on Tuesday showed that the UK monthly Gross Domestic Product (GDP) grew 0.2% MoM in January, compared to a contraction of 0.1% in the previous reading, matching the estimation of a 0.2% expansion. Additionally, UK Industrial Production for January came in worse than expected, dropping 0.2% MoM from a 0.6% rise in December. The UK Goods Trade Balance arrived at GBP-14.515 billion MoM in January from GBP-13.989 billion prior, better than GBP-15B expected.

On the other hand, the European Central Bank maintained its monetary policy unchanged last week. ECB President Christine Lagarde said that discussions over rate cuts have begun, but the central bank will see more evidence of information that will become available by June. On Monday, ECB Governing Council member Peter Kazimir stated that the central bank is increasingly confident that inflation is coming down, but should still hold off on an interest rate cut until June. Meanwhile, ECB policymaker Pierre Wunsch said they will have to gamble soon with rate cuts, even though wage inflation and price rises for services are uncomfortably high. 

Spain’s Consumer Price Index (CPI) will be due on Thursday, along with the ECB’s Elderson, Schnabel and De Guindos speeches. On Friday, the CPI inflation data from France and Italy will be released. Next week, the UK February CPI report and the BoE interest rate decision will be in the spotlight.