EUR/GBP weakens below 0.8450, traders await Eurozone inflation data for fresh impetus

• EUR/GBP extends its downside around 0.8415 in Thursday’s early European session, losing 0.20% on the day. 
• Rising expectation of additional rate cuts by the ECB weighs on the Euro. 
• BoE’s Bailey 'cautiously optimistic' inflationary pressures in the UK are easing, but it’s too early to declare a victory. 
• The Eurozone flash HICP inflation data for August will be in the spotlight on Friday. 

The EUR/GBP cross trades in negative territory for the seventh consecutive day near 0.8415 during the early European session on Thursday. The higher bets that the European Central Bank (ECB) will cut interest rates again in its September meeting further weigh on the Euro (EUR) against the Pound Sterling (GBP).

ECB Governing Council member Klaas Knot said on Wednesday that he awaited more information before deciding on whether to support an interest rate cut in September. However, markets expect the ECB to lower the borrowing costs next month amid easing price pressures and an uncertain economic outlook. 

The flash estimate of the Eurozone Harmonized Index of Consumer Prices (HICP) will be released on Friday. The headline inflation is estimated to ease to 2.2% YoY in August from 2.6% prior, while the core CPI inflation is expected to drop to 2.8% YoY in August from 2.9% in the previous reading. In case of the hotter-than-expected outcome, this might lift the shared currency and cap the downside for EUR/GBP. 

On the other hand, stronger than forecast economic data in recent months and optimism about the new Labour government underpin the GBP. The comments from the Bank of England (BoE) Andrew Bailey also support the GBP. Bailey stated that “policy setting will need to remain restrictive for sufficiently long until the risks to inflation remaining sustainably around the 2% target in the medium term have dissipated further. The course will therefore be a steady one.” Economists anticipate one more 25 basis points (bps) rate cut from the BoE this year, according to a Reuters poll.