EUR/GBP trades flat above 0.8400, focus on August UK/eurozone inflation data

• EUR/GBP is trading flat near 0.8420 in the Asian session on Tuesday.
• The Kazakh ECB said the central bank will continue to ease monetary policy, although it should not do so too quickly.
• The BoE is expected to leave interest rates unchanged at its September meeting on Thursday.

The EUR/GBP cross remains steady around 0.8420 in early European trading hours on Tuesday. The European Central Bank’s (ECB) interest rate cut and lower growth forecasts could further hurt the euro (EUR) in the near term. Investors await August UK and euro zone inflation data on Wednesday for further impetus. On Thursday, the Bank of England’s (BoE) interest rate decision will be in the spotlight.

The ECB decided to cut its key deposit rate by a quarter of a point to 3.5% last week as inflation eases. It was the second cut, after the first move in June. The ECB president said during the press conference that the future path of the interest rate is “not predetermined” and the central bank will be “data dependent”. On Monday, ECB Governing Council member Martins Kazaks said the central bank would continue to ease monetary policy, although it should not do so too quickly due to lingering inflation risks.

Wednesday’s release of the Eurozone’s Harmonized Index of Consumer Prices (HICP) could provide some clues about the path of inflation in the Eurozone and influence the ECB’s next move. Headline and core inflation are expected to be unchanged annually in August. However, the hotter-than-expected result could prompt the ECB to slow the pace of interest rate cuts, which could lift the common currency.

On the other hand, the Bank of England (BoE) is expected to keep interest rate at 5.0% on Thursday. However, the slowdown in wage growth could prompt the UK central bank to cut at least once before the end of the year. “The tone of the August meeting and subsequent speeches made it very clear that officials do not want markets to run away with the idea that this is going to be a quick easing cycle,” said James Smith, economist at ING.

On Wednesday, UK consumer price index (CPI) inflation data will be released. The CPI is expected to show an increase of 2.2% year-on-year in August, while the core CPI is expected to increase by 3.5% in the same reporting period. The weaker reading could prompt the BoE to consider another rate cut in November.