• EUR/GBP is gaining strength to around 0.8275 during Wednesday’s early European session, up 0.27% on the day.
• The annual CPI in the UK rose by 2.6% in November against the expected 2.6%.
• ECB President Christine Lagarde suggested potential interest rate cuts amid the risk of weakening inflation.

The EUR/GBP rate remains positive near 0.8275, snapping a two-day losing streak during the early European session on Wednesday. The pound sterling (GBP) is weakening following November’s UK Consumer Price Index (CPI) inflation data. On Wednesday, traders will be closely watching the report on the Harmonized Index of Consumer Prices (HICP) for the euro area.

Data published on Wednesday by the Office for National Statistics (ONS) showed that the UK CPI increased by 2.6% y/y in November, compared to a 2.3% augment recorded in October. The reading was in line with the market consensus of 2.6% and remained well above the Bank of England’s (BoE) target of 2.0%.

Meanwhile, core CPI, excluding volatile food and energy price items, increased by 3.5% y/y in November compared to an augment of 3.3% in October, i.e. it missed the estimate of 3.6%. On a monthly basis, UK CPI inflation fell to 0.1% in November from 0.6% in October. Markets expect printing of 0.1% in the reported month. The UK inflation report did not strengthen the pound sterling and acts as a tailwind for EUR/GBP.

The European Central Bank (ECB) cut its key interest rates last week for the fourth time this year and signaled further interest rate cuts as inflation risks recede. During a press conference, ECB President Christine Lagarde said: “The direction is clear and we expect further reductions in interest rates.” Dovish comments from ECB policymakers may weigh on the euro (EUR) against GBP. In addition, concerns about a frail economy and uncertainty about potential tariffs in the US may contribute to the weakening of the common currency.