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

• EUR/GBP slips towards 0.8390 in early European trading on Wednesday.
• Higher fuel prices pushed UK CPI inflation up to 3.5% YoY in September.
• France’s deteriorating fiscal prospects come under scrutiny as unrest deepens concerns.

Stronger-than-expected UK inflation figures draw buyers to the British Pound (GBP), leaving EUR/GBP lower at around 0.8390 in Wednesday’s early European session. For further direction, traders await a speech later on Wednesday by European Central Bank (ECB) President Christine Lagarde.

September’s headline UK Consumer Price Index (CPI) rose 3.5% year-on-year (YoY), up from 3.1% previously, according to figures published on Wednesday by the Office for National Statistics (ONS). The reading exceeded the market’s forecast of 3.4%.

Excluding volatile food and energy components, core CPI increased by 2.8% YoY in September, accelerating from the previous reading of 2.6% and surpassing the 2.7% forecast. Monthly UK CPI inflation, meanwhile, stood at 0.4% in September. Although below the prior 0.5%, it was higher than the expected 0.3%.

Expectations of an imminent Bank of England (BoE) interest rate increase have strengthened following the September UK inflation release. That has lent support to GBP while putting pressure on the cross.

A rise in borrowing costs is widely anticipated at the BoE’s next meeting on 5 November, which would mark its first increase since 2023. According to Bloomberg, market pricing now incorporates a further three rate increases over the next 12 months.

The Euro is also under pressure from protests in France, which have heightened unease over the country’s deteriorating fiscal outlook. On Tuesday, Reuters reported that the French government would deploy troops to reinforce the police and launch a major security operation ahead of further protests scheduled for Saturday. The plans followed the government’s acknowledgement of 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 food and energy price rises ahead

For Danske Bank analysts, the latest UK inflation figures were broadly consistent with expectations. They observe that “inflation is moving broadly as we expected and, in some instances, moving slower than we thought it would,” describing “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 price pressures, warning that “underlying inflation trends are pushing higher, with all our preferred core services metrics rising in September,”

On the energy outlook, Danske Bank cautions that “further rises in energy prices are inevitable.” The analysts point to “Brent spot prices rising again,” and anticipate that “further increases at the pump will hit the UK’s shores,” alongside a warning that “gas and electricity bills will see a big jolt in January”. Their Ofgem Price Cap projections “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.”

Turning to food, the bank restates its long-held assessment that “food price pressures would be hard to ignore for much longer.” It maintains that, despite “fierce supermarket competition,” “higher energy and weather-related shocks will push seasonal and processed food prices up over the next year or so.” Summing up, the analysts say that “today’s inflation data confirmed what we all expected: price pressures are firming and inflation remains on an upward trajectory,” and warn that “despite today’s uncomfortable jump in CPI, there’s more to come.”

Greene’s wage inflation warning curbs GBP rate-cut expectations

Although Greene’s FXS Speechtracker score of 7.4/10 is in line with the historical average, her focus on stalled wage disinflation and a heightened risk of second-round effects gives the remarks a distinctly hawkish tone. Her emphasis on pay growth closer to 3.5%, with wages still above levels compatible with 2% inflation, suggests she regards domestic price pressures as persistent. This leaves less room for rapid BOE easing and offers some support to GBP.

Greene’s reference to the economy’s “surprising resilience”, together with her observation that labour market slack may have peaked, strengthens the argument that demand conditions can sustain inflation risks. With activity holding up and wages proving sticky, the case for the BOE to “proactively lean” against inflation gains weight. Markets are likely to read that combination as hawkish for UK interest rates and broadly favourable for GBP in the near term.

Technical Analysis: EUR/GBP remains under pressure below the 100-day SMA

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

Immediate support lies around 0.8365 at the lower Bollinger band. A sustained breach would clear a path towards fresh lows within the wider downtrend. On any recovery, the Bollinger middle band at 0.8485 provides the first 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.)