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Euro trims gains against British pound after UK CPI surprises higher
UK headline CPI rose 2.9% year over year in July, lifting expectations for a potential Bank of England rate hike by year end.
The EUR/GBP currency cross pared earlier gains to trade around 0.8555 in early European session action on Wednesday, with the British pound drawing support following fresh UK inflation data, according to FXStreet.
Data from the UK Office for National Statistics showed headline consumer price index inflation climbed to 2.9% year over year in July from 2.6% in June, matching market expectations. The pickup was attributed to a sharp increase in gas prices tied to a higher household energy price cap, while core CPI, excluding food and energy, rose 2.6% year over year in July, slightly hotter than the forecast of 2.5%.
On a monthly basis, headline CPI increased 0.3% in July versus a 0.1% rise in June, also in line with consensus. Money market pricing cited by FXStreet indicates City economists see one Bank of England rate hike by the end of the year, which would lift the Bank rate from 3.75% to 4.0%.
In the euro area, ECB chief economist Philip Lane said on Tuesday that eurozone inflation around 3% is still too high, even if it looks modest versus prior levels. Ahead of the September meeting, FXStreet noted markets are pricing a continuation of ECB hiking, with the ECB Watch Tool indicating 90% to 94% odds of a 25 basis points hike to 2.50%.