• EUR/GBP trades around 0.8660 on Friday, down 0.15% on the day, following the release of German inflation figures.
• German inflation returns to the ECB’s target, reinforcing expectations of a near-term monetary policy status quo in the Eurozone.
• Pound Sterling stays sidelined ahead of key UK employment and inflation data due next week.

EUR/GBP trades lower around 0.8660 on Friday at the time of writing, down 0.15% on the day. In the Eurozone, data published on Friday confirm a clear easing in inflationary pressures in Germany. The final Harmonized Index of Consumer Prices (HICP) shows monthly inflation at 0.2% in December, after -0.5% in November, while annual inflation stands at 2.0%, down from 2.6% previously. This reading matches the European Central Bank’s (ECB) inflation target, strengthening the view that the disinflation process is well underway in the Eurozone’s largest economy. However, the release failed to sustain a recovery of the Euro (EUR) against the Pound Sterling (GBP).

On the UK side, the Pound Sterling is expected to remain relatively steady in the near term, as investors prefer to wait for the next major data releases. UK employment figures and Consumer Price Index (CPI) data, due next week, will be closely watched for clues on the future path of the Bank of England’s (BoE) monetary policy. These indicators are likely to play a key role in shaping expectations regarding the timing and pace of any potential policy easing.

The British currency has recently found some fundamental support. Stronger-than-expected monthly Gross Domestic Product (GDP) data, released on Thursday, have helped temper overly dovish expectations for the BoE. According to the Office for National Statistics, the UK economy returned to growth, with GDP rising by 0.3%, well above forecasts of 0.1%. This follows contractions of 0.1% in September and October, after flat growth in August. At its December meeting, the Bank of England also signalled that any easing in monetary policy would follow a gradual path, a message that continues to support the Pound Sterling against the Euro.

Against this backdrop, EUR/GBP remains sensitive to upcoming UK data releases and evolving monetary policy expectations on both sides of the Channel.