EUR/GBP remains capped under the mid-0.8600s ahead of Eurozone HICP data

• EUR/GBP drifts lower to 0.8630 ahead of the Eurozone HICP report.
• ECB’s Vasle said the ECB would need at least until spring to evaluate its policy stance.
• Investors anticipate the BoE to cut rates five times next year due to the recent drop in annual inflation and annual earnings growth.

The EUR/GBP cross trades on a softer note during the early European session on Tuesday. The cross remains capped under the key 100-day Exponential Moving Average (EMA) around 0.8645 on the daily chart. Investors await the Eurozone Harmonized Index of Consumer Prices (HICP) report for fresh impetus. The headline HICP is expected to drop 0.5% MoM in November, while the Core HICP is projected to decline 0.6% MoM in the same period. At press time, EUR/GBP is trading near 0.8631, down 0.03% on the day.

The European Central Bank (ECB) policymaker Bostjan Vasle said on Monday that the ECB would need at least until spring to evaluate its policy stance and that market expectations for an interest rate cut in March or April are premature. Meanwhile, ECB Governing Council member Peter Kazimir noted that the risks of premature easing are more significant than the risk of remaining tight for too long. Nevertheless, markets now anticipate rate cuts in March, with one fully priced in by April and more than two movements anticipated by June.

On the other hand, investors expect the Bank of England (BoE) to cut interest rates five times next year, owing to the recent drop in annual inflation to 4.6% and the decline in the estimate of annual earnings growth from 8% to 7.2%. However, BoE policymaker Ben Broadbent said that in the current uncertain situation, it was premature to conclude that the labor market was cooling and the central bank needed to see a steeper and more ongoing slowing of pay growth before declaring that the battle against wage inflation had been won.

Later on Tuesday, traders will monitor the Eurozone HICP inflation data. If the report shows weaker-than-expected figures, this could exert some selling pressure on the Euro (EUR) and cap the upside of the EUR/GBP cross. On Wednesday, the UK Consumer Price Index (CPI), UK Producer Price Index (PPI), and the Eurozone PPI data will be released.