EUR/GBP rallies to near 0.8380 as UK Inflation decelerates

• EUR/GBP rises strongly to near 0.8380 as soft UK inflation prompts BoE dovish bets.
• UK service inflation slowed to 4.9% and the core CPI decelerated to 3.2% in September.
• Investors await ECB Lagarde’s speech for fresh interest rate outlook.

The EUR/GBP pair surges to near 0.8380 in Wednesday’s European session. The cross strengthens after the release of the United Kingdom (UK) Consumer Price Index (CPI) report for September, which showed that price pressures grew at a slower-than-expected pace.

Signs of inflationary pressures taming have prompted expectations of more interest rate cuts by the Bank of England (BoE) in the remaining year.

The CPI report showed that the annual headline inflation decelerated to 1.7%, below the bank’s target of 2%. Month-on-month headline CPI remained flat, which was expected to hardly grow. Annual core CPI – which excludes volatile items – rose by 3.2%, slower than estimates of 3.4% and the former release of 3.6%.

Meanwhile, inflation in the services sector also slowed sharply due to lower wage growth. The Service inflation, a closely watched indicator by BoE officials, grew by 4.9%, slower than 5.6% in August.

The Pound Sterling (GBP) was underperforming against its major peers from a few days after BoE Governor Andrew Bailey’s interview with the Guardian newspaper in which his comments were a bit dovish on the interest rate outlook. Bailey said the BoE could become "a bit more activist" and "a bit more aggressive" in its approach to lowering rates if there was further welcome news on inflation for the central bank, Reuters reported.

On the Euro (EUR) front, investors await European Central Bank (ECB) President Christine Lagarde’s speech for fresh guidance on interest rates, which is scheduled at 19:40 GMT. Comments from ECB Lagarde could be on the dovish side as price pressures in the Eurozone have decelerated sharply in September.

According to revised estimates, the annual CPI (EU norm) in France slowed to 1.4% in September from expectations and the prior estimates of 1.5%.