EUR/GBP pares gains above 0.8650 after hotter UK CPI inflation data

• EUR/GBP trims gains around 0.8675 in Wednesday's early European session.
• UK CPI inflation rose to 3.6% YoY in June from 3.4% in May, hotter than expected. 
• EU officials stated that discussions to avoid US tariffs are still underway, though a retaliatory package is being prepared.

The EUR/GBP cross trades in positive territory near 0.8675 during the early European session on Wednesday. However, the Pound Sterling (GBP) recovers some lost ground against the Euro (EUR) after the UK Consumer Price Index (CPI) inflation report. Traders await the US Producer Price Index (PPI), followed by the Fed Beige Book and Industrial Production due later on Wednesday. 

Data released by the United Kingdom's Office for National Statistics on Wednesday showed that the country's headline CPI rose 3.6% YoY in June, compared to an increase of 3.4% in May. This reading came in above the market consensus of 3.4%. The Core CPI, which excludes the volatile prices of food and energy, climbed 3.7% YoY in June versus 3.5% prior, hotter than the expectation of 3.5%. 

Meanwhile, the monthly UK CPI inflation rose to 0.3% in June from 0.2% in May. Markets projected an increase of 0.2% reading. The Pound Sterling attracts some buyers in an immediate reaction to the hotter UK CPI inflation data.

Renewed trade tensions between the US and the European Union (EU) might cap the upside for the EUR. The Wall Street Journal reported on Tuesday that the bloc is preparing tariffs on US goods, including aircraft, alcohol, coffee, and medical devices worth 72 billion euros ($84 billion) in case no trade deal is reached by August 1. This action came after Trump threatened to impose a 30% tariff on imports from the EU and Mexico beginning early August.

Traders will closely monitor the developments surrounding the US-EU trade deal. Higher US tariffs on imports from the EU would further weaken growth in the Eurozone, and likely prompt the European Central Bank (ECB) to lower borrowing costs. This, in turn, could drag the shared currency lower in the near term.