Euro extends gains against British Pound as Eurozone inflation accelerates

• EUR/GBP appreciated for the fifth day in a row, reaching session highs above 0.8550.
• Eurozone final HICP figures confirm that price pressures accelerated in July.
• In the UK, hotter CPI and soft employment figures have left the Pound on the defensive.

The Euro (EUR) trades higher against the British Pound (GBP) on Wednesday, on track for a five-day winning streak, and received additional support after Eurozone final inflation figures confirmed higher price pressures in July. The EUR/GBP has reached session highs at 0.8560 after bouncing from last week’s lows, at 0.8530.

Eurozone’s final Harmonised Index of Consumer Prices (HICP) confirmed preliminary data pointing to an acceleration to a 2.9% year-over-year (Y-o-Y) rate in July, from 2.8% in June. Likewise, the Core HICP ticked up to a 2.5% Y-o-Y growth rate in July from 2.4% in the previous year.

Month-over month, the HICP bounced up to a 0.2% gain after a 0.1% contraction in June, while the core HICP remained flat for the second consecutive month.

These figures strengthen the case for an interest rate hike by the European Central Bank (ECB) in September, particularly after ECB official and Finnish Central Bank Governor Olli Rehn reiterated earlier on Wednesday that “keeping inflation expectations anchored is essential”

UK data shows hotter inflation and a softer labour market

Earlier on the day, UK Consumer Price Index (CPI) data revealed that inflation accelerated to a 0.3% rate in July, from 0.1% in May and 2.9% year-over-year (Y-o-Y) from 2.6% in the previous month, in line with market expectations. 

The Core CPI grew at a 2.6% Y-o-Y rate, unchanged from the previous month, against the market consensus for a slowdown to a 2.5% yearly rate. The impact of these figures on the Pound, however, was minimal.

These figures follow a mixed UK employment report which put the Pound under pressure on Monday. The ILO Unemployment Rate remained steady against expectations of a slight decline, employment growth slowed down, the number of jobless claimants declined unexpectedly, and wage growth accelerated after having remained steady over the previous three months.