UK CPI data boosts expectations of imminent BoE rate hike as Euro falls against British Pound

• 0.8390: EUR/GBP eases towards this level in early European trading on Wednesday.
• 3.5% YoY: UK CPI inflation accelerated in September as fuel prices rose.
• France's deteriorating fiscal outlook draws renewed concern amid unrest.

EUR/GBP slips towards 0.8390. The cross is under pressure in Wednesday's early European session as stronger-than-expected UK inflation draws buyers to the British Pound (GBP). For fresh direction, traders await remarks later on Wednesday from European Central Bank (ECB) President Christine Lagarde.

UK headline Consumer Price Index (CPI) inflation reached 3.5% year-on-year (YoY) in September, according to Wednesday's release from the Office for National Statistics (ONS). That exceeded the market consensus of 3.4% and accelerated from the previous reading of 3.1%.

Excluding volatile food and energy components, core CPI increased 2.8% YoY in September. This was above both the previous 2.6% rise and the 2.7% forecast. Monthly UK CPI inflation registered 0.4% in September, down from 0.5% previously but ahead of the 0.3% estimate.

Expectations of an imminent Bank of England (BoE) rate increase have strengthened following the September UK inflation report. This supports GBP and puts pressure on the cross.

At its next meeting on 5 November, the BoE is widely expected to raise borrowing costs for the first time since 2023. According to Bloomberg, markets now price in a further three rate increases over the next 12 months.

The Euro faces pressure as protests in France heighten worries about the country's deteriorating fiscal position. On Tuesday, Reuters reported that the French government would deploy troops to reinforce police and launch a major security operation ahead of further protests planned for Saturday. The government also acknowledged shortcomings in its response to the previous weekend's violence.

Handelsbanken FX strategist Tommy von Brömsen said: "The worries in France are not going away anytime soon," adding: "The bearish view on France will stay for a while longer, and there's much more euro weakness to be priced in,”

UK inflation pressure strengthens, with further energy and food cost rises ahead

Danske Bank analysts see the latest UK inflation figures as largely consistent with expectations. They note that “inflation is moving broadly as we expected and, in some instances, moving slower than we thought it would,” and describe “food price momentum the one bright spot in the data” as food and non-alcoholic beverages CPI “didn’t move at 1.3% y/y.” Beneath the headline readings, however, they see more persistent pressure, warning that “underlying inflation trends are pushing higher, with all our preferred core services metrics rising in September,”

On the outlook, Danske Bank cautions that “further rises in energy prices are inevitable.” Against a backdrop of “Brent spot prices rising again,” the analysts anticipate that “further increases at the pump will hit the UK’s shores,” and warn that “gas and electricity bills will see a big jolt in January”. Their Ofgem Price Cap forecasts “point to a near GBP 2,100 annual dual fuel bill in the new year, with declines only likely to come in the second half of 2027.”

Danske Bank maintains its long-held assessment that “food price pressures would be hard to ignore for much longer.” Even with “fierce supermarket competition,” the bank expects that “higher energy and weather-related shocks will push seasonal and processed food prices up over the next year or so.” Its overall conclusion is that “today’s inflation data confirmed what we all expected: price pressures are firming and inflation remains on an upward trajectory,” with the further warning that “despite today’s uncomfortable jump in CPI, there’s more to come.”

7.4/10: Greene's wage warning restrains GBP rate-cut expectations

At 7.4/10, Greene's FXS Speechtracker score is in line with the historic average. Yet her focus on stalled wage disinflation and increased risks of second-round effects gives the remarks a clear hawkish bias. Her emphasis on pay growth closer to 3.5%, with wages still above levels consistent with 2% inflation, indicates that she sees enduring domestic price pressure. This constrains the scope for rapid BOE easing and offers marginal support to GBP.

Demand conditions may continue to sustain inflation risks, a view reinforced by Greene's reference to the economy's “surprising resilience” and her observation that labour market slack may have peaked. Resilient activity, alongside sticky wages, supports the case for the BOE to “proactively lean” against inflation. Markets are likely to read this as hawkish for UK rates and broadly supportive of GBP in the near term.

100-day SMA caps EUR/GBP: Technical Analysis points to bearish bias

On the daily chart, spot EUR/GBP remains below both the 20-period Bollinger middle band and the 100-day moving average, maintaining its near-term bearish bias. The substantial gap below the upper Bollinger band also points to a downside-skewed price structure. Meanwhile, the Relative Strength Index (14) sits near 17. Such deeply oversold conditions could temper the decline without yet reversing it.

Immediate support sits around 0.8365 at the lower Bollinger band. A sustained breach would clear the path to fresh lows within the broader downtrend. On a recovery, the Bollinger middle band at 0.8485 provides initial resistance, followed by stronger supply near the 100-day moving average at 0.8560 and the upper Bollinger band at 0.8612.

(The technical analysis of this story was written with the help of an AI tool. Know more.)