EUR/GBP bulls approach 0.8700 on softer UK inflation, European energy crisis in focus

• EUR/GBP picks up bids to refresh intraday top after the UK’s inflation data for August.
• UK CPI dropped to 9.9% YoY versus 10.2% expected, 10.1% prior.
• EU’s von der Leyen will announce energy price cap details, USTR Tai braces for trade meet with EC VP Dombrovskis.
• Increasing hawkish bets on BOE, Brexit optimism battles ECB hopes to trouble traders.

EUR/GBP extends the previous day’s run-up to 0.8683 after the UK reported surprisingly softer inflation numbers during early Wednesday. Also fueling the cross-currency pair are the risk-positive catalysts surrounding Europe.

UK Consumer Price Index (CPI) declined to 9.9% YoY versus 10.2% market forecasts and 10.1% previous readings. Further, the Retail Price Index also eased, reprinting 12.3% YoY figures versus 12.4% expected.

Also read: Breaking: UK annualized inflation unexpectedly eases to 9.9% in August vs. 10.2% expected

It’s worth noting that the hawkish hopes from the European Central Bank (ECB) and expectations that the bloc will soon overcome the energy crisis also seem to underpin the EUR/GBP rebound during the sluggish session.

Alternatively, expectations of 50 basis points (bps) of rate hike from the Bank of England (BOE) challenge EUR/GBP buyers. News from the UK’s Daily Mail, quoting the Irish PM Micheál Martin, appears on the same line. The Irish PM Martin said, per the news, that Queen's death is a chance to 'reset' relations between Britain and Ireland and 'enhance' links following Brexit rows.

On Tuesday, Eurozone ZEW Economic Sentiment dropped to -60.7 for September, versus -52 expected and -54.9 prior. For Germany, the sentiment gauge slid to -61.9 compared to -60.0 market forecasts and -55.3 previous readings. “We face a threat of recession next year,” German Economy Minister Robert Habeck said following the data on Tuesday. On the same line, the Economy Ministry update stated that the German economic outlook for H2 dramatically worsened, output in H2 could stagnate or contract.

At home, the headline Claimant Count Change rose to 6.3K in August compared to the market consensus of -9.2K and -10.5K prior. Further details suggest that the ILO Unemployment Rate for three months to July dropped to 3.6% versus 3.8% market forecasts.

Moving on, European Union (EU) Chief Ursula von der Leyen’s plans for the energy price capping and US Trade Representative Katherine Tai’s EU visit to meet European Commission Vice President Valdis Dombrovskis will be important to watch for nearby EUR/GBP moves. Also important will be the political chatters in the EU and the UK surrounding China and Russia.

Technical analysis

A three-week-old ascending support line, around 0.8665, restricts the short-term EUR/GBP downside. That said, the pair’s latest bounce off the same trend line directs the quote towards the yearly high around 0.8725, marked on Monday.