• EUR/GBP rebounds as softer-than-expected UK inflation weighs on the Pound.
• UK CPI falls 0.2% MoM in November, reinforcing BoE rate-cut expectations.
• Stable Eurozone inflation keeps the ECB in wait-and-see mode.

The Euro (EUR) strengthens against the British Pound (GBP) on Wednesday, as softer-than-expected UK inflation data weigh on Sterling, while stable Eurozone inflation leaves the Euro relatively supported. At the time of writing, EUR/GBP is trading around 0.8785, reversing the previous day’s losses.

Data published by the UK Office for National Statistics showed that the headline Consumer Price Index (CPI) fell 0.2% MoM in November, missing market expectations for a flat reading and reversing sharply from October’s 0.4% increase. On an annual basis, CPI slowed to 3.2% YoY, its lowest level in eight months, down from 3.6% previously and below forecasts of 3.5%.

Underlying price pressures also moderated. Core CPI, which strips out volatile food and energy components, slowed to 3.2% YoY from 3.4%.

On the employment front, recent data showed that labour market conditions continued to ease in October, with the ILO Unemployment Rate rising to 5.1%, its highest level since Q1 2021, even as wage growth remained relatively firm.

Together, the softer inflation backdrop and easing labour market conditions strengthen the case for a more accommodative stance from the Bank of England (BoE). Markets are widely expecting the BoE to deliver a 25 basis point (bps) rate cut at Thursday’s monetary policy meeting, with interest rate futures also pointing to around 69 bps of additional easing priced in by the end of 2026.

On the Euro side, inflation data remained broadly stable, reinforcing the view that price pressures in the Eurozone are holding close to the European Central Bank’s (ECB) target. The Harmonized Index of Consumer Prices (HICP) fell 0.3% MoM in November, in line with expectations and unchanged from October. On an annual basis, HICP eased to 2.1% YoY, below both the 2.2% forecast and October’s 2.2% reading.

Meanwhile, core HICP, which excludes volatile components, declined 0.5% MoM, unchanged from the previous month, while the annual core rate held steady at 2.4% YoY, in line with expectations.

The steady inflation backdrop supports the ECB’s current wait-and-see stance, with policymakers widely expected to leave all three key interest rates unchanged at Thursday’s policy meeting.