EUR/GBP holds steady near 0.8350 ahead of Eurozone HICP inflation data

• EUR/GBP flat lines around 0.8355 in Tuesday’s early European session. 
• ECB’s Vujcic said the risk of undershooting the inflation goal has risen. 
• The UK GDP fell by 0.1% MoM in September, weaker than expected. 

The EUR/GBP cross trades on a flat note near 0.8355 during the early European session on Tuesday. The rising bets for more aggressive rate cuts by the European Central Bank (ECB) might drag the Euro (EUR) lower against the Pound Sterling (GBP). Investors brace for the Eurozone October Harmonized Index of Consumer Prices (HICP) data, which is due later on Tuesday.

The ECB Governing Council member Boris Vujcic said on Monday that the danger that the ECB will fall short of its 2% inflation goal has risen, per Bloomberg. Meanwhile, the ECB policymaker Yannis Stournaras noted that the bank is almost certain to cut interest rates by a quarter point in December. 

The ECB has cut its key interest rate by 25 basis points to 3.25% last month and is anticipated to reduce rates further again in December at its final decision of the year. However, investors await the Eurozone HICP data for fresh impetus about the inflation outlook. If the report shows the hotter-than-expected outcome, this could dampen the hope for the ECB jumbo rate cut, which might lift the shared currency. 

On the other hand, a surprise contraction in UK Gross Domestic Product (GDP) for September could weigh on the GBP. The UK economy shrank by 0.1% MoM in September, following growth of just 0.2% the previous month, according to the Office for National Statistics on Friday. This figure came in weaker than the 0.2% expansion expected. 

However, Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said a rate reduction at the Bank of England’s (BOE) meeting in December now looks “improbable” as inflation concerns and rising global headwinds would likely prevent policymakers from pursuing back-to-back rate cuts. The release of UK Consumer Price Index (CPI) data for October on Wednesday could offer some hints about the rate cuts path for the December meeting.