• EUR/GBP falls to its lowest level since July 2025 after Eurozone inflation misses forecasts.
• Headline and core inflation both slowed in June, weighing on ECB rate-hike expectations.
• Traders also monitor UK political developments and the BoE's monetary policy outlook.

The Euro (EUR) falls against the British Pound (GBP) on Wednesday after softer-than-expected Eurozone inflation data reduced expectations for another European Central Bank (ECB) interest rate increase this year.

At the time of writing, EUR/GBP trades around 0.8598, its lowest level since July 2025.

Traders await speeches from ECB President Christine Lagarde and Bank of England (BoE) Governor Andrew Bailey at the ECB Forum in Sintra due later on Wednesday.

Data released by Eurostat showed that the preliminary Harmonized Index of Consumer Prices (HICP) rose 2.8% YoY in June, slowing from 3.2% in May and coming in below the 3.0% forecast. On a monthly basis, HICP fell 0.1%, compared with a 0.1% increase in the previous month.

Core HICP, which excludes volatile items such as food and energy, eased to 2.4% YoY in June from 2.6% in May, falling short of both the previous reading and market expectations. On a monthly basis, core inflation rose 0.2%, following a 0.3% increase in the previous month.

With inflation showing signs of cooling and Oil prices back near pre-US-Iran war levels, traders are increasingly questioning whether the ECB needs to raise interest rates again this year.

However, ECB policymakers continue to express concern about inflation. ECB Governing Council member Joachim Nagel said he would "keep options open for July, September decisions," while warning that inflation "will stay on a high level this year" and "will stay above target in 2027."

Meanwhile, ECB Governing Council member Martin Kocher said the "inflation threat is lower, not completely contained," adding that the next policy decision would be "either hike or hold."

On the UK side, traders are closely watching political developments following Prime Minister Keir Starmer's resignation last month, as they assess whether frontrunner Andy Burnham would maintain fiscal discipline if he becomes the next prime minister.

Meanwhile, traders are also monitoring the Bank of England's (BoE) policy outlook after BoE Governor Andrew Bailey said on Tuesday that UK inflation could still rise to 3.2% later this year. Bailey added that "financial conditions have tightened, giving the BoE time to evaluate whether it needs to raise the Bank Rate."