EUR/GBP refreshes five-month high at 0.8750 on soft Eurozone inflation report

• EUR/GBP climbs to near 0.8750 as Eurozone inflation softened in October.
• The Eurozone economy reported de-growth by 0.1% in the Q3 GDP.
• A steady interest rate policy from the BoE is widely anticipated.

The EUR/GBP pair prints a fresh five-month high at 0.8750 as Eurozone headline inflation remained softer-than-anticipated in October. The Eurostat reported that the monthly preliminary headline Harmonized Index of Consumer Prices (HICP) grew marginally by 0.1% against a 0.3% acceleration in September.

Annual headline HICP decelerated significantly to 2.9% against expectations of 3.1% and 4.3% reading from September. The core HICP that excludes volatile oil and food prices grew at a steady pace of 0.2% on a monthly basis. The annual core HICP softened to 4.25 as expected from a 4.5% reading in September. Consistently easing consumer inflation would allow European Central Bank (ECB) policymakers to continue to deliver neutral interest rate guidance.

Apart from the inflation data, Eurostat reported that the trading bloc contracted by 0.1% in the July-September quarter while investors forecasted a stagnant performance. In the April-June quarter, the economy grew by 0.1%. The economic activities in the old continent remained weak as it is struggling to absorb the consequences of higher interest rates by the ECB.

On the Pound Sterling front, investors await the interest rate decision by the Bank of England (BoE), which will be announced on Thursday. In spite of the fact that the consumer inflation in the UK economy is highest among G7 economies, a steady interest rate decision is widely anticipated from BoE Governor Andrew Bailey.

The United Kingdom economy has been exposed to a recession due to weak labor demand, poor consumer spending and deepening Middle East tensions. More rate hikes from the BoE would deepen recession fears.