EUR/GBP weakens as Eurozone inflation steady, UK PMI stabilizes

• Eurozone inflation rose 2.2% YoY in September, core HICP steady at 2.3%, both aligned with economists' forecasts.
• EZ manufacturing PMI improved to 49.5, signaling stabilization, while UK factory PMI held unchanged at 46.2.
• UK GDP stagnated in Q2, with households under inflation pressure and tax hike risks weighing on Sterling outlook.

The EUR/GBP drops during the North American session after the latest release of inflation in the Eurozone came aligned with estimates, but slightly above the European Central Bank (ECB) goal. The cross trades around 0.8696, down 0.36%.

Cross falls despite Eurozone CPI holding above ECB's target and business activity showing signs of recovery

Europe revealed that inflation rose by 2.2% YoY in September, aligned with estimates but above August's 2% print. Excluding volatile items, the so-called core Harmonized Index of Consumer Prices (HICP) for the bloc was steady at 2.3% YoY, as foreseen.

Other data revealed that business activity in the EZ improved, with the HCOB Manufacturing PMI rising from 48.5 to 49.5 in September, above estimates of 48.5.

In the UK, the S&P Global Manufacturing PMI contracted in September, yet it seems to stabilize after remaining unchanged at 46.2 as in August.

On Tuesday, traders digested the release of Gross Domestic Product (GDP) figures for Britian, which shown the economy stagnated in Q2. In the meantime, British households are facing high inflation, also a possible tax increase by the finance minister Rachel Reeve, would put pressure on the British Pound.

EUR/GBP Price Forecast: Consolidates around 0.8700

The EUR/GBP seems to have peaked as depicted by the technical picture, although retreated, bounced off a key support level at the 20-day Simple Moving Average (SMA) at 0.8694, which drove the pair above 0.8700.

Momentum indicates that sellers are in charge, but the Relative Strength Index (RSI) remains above its neutral level, suggesting that buyers are stepping in.

If the cross ends on a daily basis above 0.8700, buyers could test the daily high of 0.8742. key resistance levels lie overhead, like the yearly peak at 0.8757 and 0.8800. On the other hand, the first support is the 20-day SMA at 0.8694, followed by the 50-day SMA at 0.5674.