Euro trims losses against the British Pound, supported by ECB tightening hopes

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EUR/GBP picks up to the 0.8500 area from 13-month lows at 0.8455.
Heightened hopes that the ECB might hike rates in September are buoying the Euro.
Investors' confidence in the next UK PM's fiscal responsibility has been boosting the Pound over the last few weeks.

The Euro (EUR) trades higher against the British Pound (GBP) on Friday, returning to levels near 0.8500 from 13-month lows of 0.8455 amid speculation that the European Central Bank (ECB) will hike rates in the coming months. The EUR/GBP pair, however, remains on track for its fourth consecutive weekly decline, having depreciated about 2.20% since mid-June.

The common currency is drawing some support from the alleviated risk aversion on Friday and heightened hopes that the European Central Bank (ECB) will hike rates in September. A Reuters poll released on Thursday revealed that 70% of the respondents anticipated a quarter-point rate hike in September, following a pause at July's meeting.

Comments from ECB speakers this week have supported this view, with most policymakers highlighting their concern about the high inflationary levels and showing ready to hike interest rates if necessary.

Later on Friday, June’s final Eurozone Harmonized Index of Consumer Prices (HICP) is expected to confirm that price pressures eased to 2.8% from 3.2% in the previous month, although these figures pre-date the closure of the Strait of Hormuz and the recent increase in Crude prices.

The Pound, on the other hand, has surged over the last few weeks, in the face of a political impasse in the UK. Investors’ confidence that the next cabinet will respect Chancellor Reeves’ fiscal rules has kept the Sterling supported, while speculation that the Bank of England might hike interest rates before year-end provided an additional boost to the Pound earlier in the week.

Economic Indicator

Core Harmonized Index of Consumer Prices (MoM)

The Core Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The MoM figure compares the prices of goods in the reference month to the previous month. Core HICP excludes volatile components like food, energy, alcohol, and tobacco. The Core HICP is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

Economic Indicator

Harmonized Index of Consumer Prices (YoY)

The Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.