EUR/GBP holds positive ground near 0.8450 after UK CPI data

• EUR/GBP gains momentum to near 0.8445 in Wednesday's early European session.
• UK CPI inflation eases to 2.5% YoY in December vs. 2.7% expected.
• ECB's Rehn said it makes sense to continue rate cuts. 

The EUR/GBP cross extends the rally to around 0.8445 during the early European trading hours on Wednesday. The Pound Sterling (GBP) weakens against the shared currency after the cooler-than-expected UK Consumer Price Index (CPI) inflation data for December. Later on Wednesday, the Eurozone Industrial Production will be released. Also, the European Central Bank (ECB) Vice President Luis de Guindos will deliver a speech on the same day. 

Data released by the United Kingdom's Office for National Statistics on Wednesday showed that the country's headline CPI rose 2.5% YoY in December, compared to 2.6% in November. This reading came in softer than the 2.7% expected. The Core CPI, which excludes the volatile prices of food and energy, climbed 3.2% YoY in December versus 3.5% prior, below the market consensus of 3.4%. Meanwhile, the monthly UK CPI inflation increased to 0.3% in December from 0.1% in November. Markets expected a 0.4% print.

The Pound Sterling attracts some sellers in an immediate reaction to the downbeat UK CPI inflation data. Additionally, the concerns about the UK's fiscal sustainability and rising bond yields might continue to undermine the GBP. Analysts expect higher borrowing costs may force the government to rein in spending or raise taxes to meet its fiscal rules, potentially weighing on the UK's future growth.

On the Euro front, the ECB delivered rate cuts four times last year, and traders expect three or four moves in 2025 due to the Eurozone's weak economic outlook. This, in turn, could exert some downward pressure on the Euro against the GBP. The ECB Governing Council member Olli Rehn on Monday said, "Against the backdrop of disinflation being on track and the growth outlook having weakened it makes sense to continue rate cuts."