EUR/GBP remains on the defensive near 0.8400, eyes on BoE rate decision

• EUR/GBP loses momentum around 0.8405 in Thursday's early European session. 
• The BoE is set to hold rates steady as it eyes stubborn inflation. 
• ECB's Nagel said Eurozone inflation is not where the ECB wants it to be.

The EUR/GBP cross drifts lower to near 0.8405 during the early European trading hours on Thursday. The recent UK Consumer Price Index (CPI) inflation data released on Wednesday dampens hopes that the Bank of England (BoE) will cut interest rates on Thursday, which provides some support to the Pound Sterling (GBP). All eyes will be on the BoE monetary policy meeting on Thursday.

The BoE is anticipated to leave the interest rate unchanged at 5.0% at its September meeting as the UK CPI inflation remains above the central bank's 2% target. The UK CPI rose at an annual pace of 2.2% in August, in line with the market consensus and the previous reading of 2.2%. Meanwhile, core CPI, excluding volatile food and energy items, jumped 3.6% YoY in August versus 3.3% in July, hotter than the 3.5% expected.

Traders expect the BoE to delay a second rate cut until November. However, if the UK central bank surprises a rate cut, it might exert some selling pressure on the Pound Sterling (GBP) and act as a tailwind for EUR/GBP. 

Inflation in the eurozone, as measured by the Harmonized Index of Consumer Prices (HICP), dropped to its lowest level in three years, easing to 2.2% YoY in August, but remains above the ECB's goal. ECB policymaker Joachim Nagel on Wednesday noted, "This is because the monetary policy course must remain sufficiently tight for long enough for the inflation rate to return to the 2% target in the medium term.