EUR/GBP faces some selling pressure below 0.8680 following UK CPI data

• EUR/GBP loses traction to 0.8670 after the upbeat UK inflation data.
• The UK inflation figures for September came in better than the market consensus.
• EU's ZEW Economic Sentiment Survey came in at 2.3 vs.-8.9 prior, better than expected.
• Traders await the Eurozone Consumer Price Index (CPI), ECB's President Lagarde's speech on Wednesday.

The EUR/GBP cross faces some follow-through selling during the early European session on Wednesday. The stronger-than-expected UK inflation data boosts the British Pound (GBP) and exerts some pressure on the EUR/GBP cross. The cross currently trades around 0.8682, up 0.01% on the day.

The latest data from the UK’s National Statistics showed on Wednesday that the nation’s Consumer Price Index (CPI) for September rose by 0.5% MoM from 0.3% in the previous month, beating than market consensus of 0.4%. On an annual basis, the inflation figure came in at 6.7% versus 6.7% prior, above the expectation of 6.5%. The Core CPI, which excludes volatile food and energy prices, climbed 6.1% YoY in September from the previous reading of 6.2%, better than the estimation of 6.0%. In response to the upbeat data, the GBP gains momentum against the Euro and weigh on the EUR/GBP cross.

Huw Pill, Chief Economist at the Bank of England (BoE), said on Monday that the central bank has done a lot in terms of interest rates. He also noted that if the economy has a persistent component of inflation, BoE would require a prolonged monetary policy response. Furthermore, BoE Governor Andrew Bailey said on the weekend that increasing borrowing prices were affecting the property market and employment. He indicated that interest rates will likely remain around the current 5.25%, given that restrictive policy is required to return inflation to 2%.

On the other hand, European Central Bank (ECB) President Christine Lagarde said that the ECB is keeping an eye on oil prices and the Israel-Hamas conflict for inflation risks. Meanwhile, the ECB's chief economist, Philip Lane, stated that interest rates would remain high until inflation returns to 2%, which may take longer than anticipated due to several factors.

About the data on Tuesday, the EU's ZEW Economic Sentiment Survey came in at 2.3 in October from an 8.9 drop in the previous reading, beating the market expectations. German ZEW Survey Economic Sentiment also showed an improvement by climbing to -1.1 versus -11.4 prior.

Market participants will focus on the final reading of the Eurozone Consumer Price Index (CPI) for September and Construction Output for August due later in the day. Also, ECB President Lagarde's speech could offer some hints about the further monetary policy path. On Friday, the attention will shift to the UK Retail Sales for September. These events could give a clear direction to the EUR/GBP cross.