EUR/GBP remains defensive near 0.8400, watch BoE rate decision

• EUR/GBP loses momentum around 0.8405 in early European session on Thursday.
• The BoE is set to hold rates steady while targeting stubborn inflation.
• The ECB’s Nagel said eurozone inflation is not where the ECB wants it to be.

EUR/GBP crosses lower to near 0.8405 in early European trading hours on Thursday. Recent UK Consumer Price Index (CPI) inflation data released on Wednesday dampened hopes that the Bank of England (BoE) will cut interest rates on Thursday, providing some support for the British pound (GBP). All eyes will be on the BoE’s monetary policy meeting on Thursday.

The BoE is expected to leave interest rates unchanged at 5.0% at its September meeting as UK CPI inflation remains above the central bank’s 2% target. UK CPI rose at an annual pace of 2.2% in August, in line with market consensus and the previous reading of 2.2%. Meanwhile, core CPI, excluding volatile food and energy, rose 3.6 percent from a year ago in August from 3.3 percent in July, higher than the 3.5 percent expected.

Traders expect the BoE to delay a second rate cut until November. However, if the UK central bank surprises with an interest rate cut, it could put some selling pressure on the British pound (GBP) and act as a tailwind for EUR/GBP.

Eurozone inflation, as measured by the Harmonized Index of Consumer Prices (HICP), fell to its lowest level in three years, falling to 2.2% year-on-year in August, but remains above the ECB’s target. ECB policymaker Joachim Nagel noted on Wednesday: “This is because the course of monetary policy needs to remain tight enough for long enough for the inflation rate to return to the 2% target over the medium term.