EUR/GBP steady ahead of UK inflation report, Eurozone stability concerns linger

• UK headline CPI inflation is expected to accelerate to 4.0% in September, in line with the Bank of England's forecast.
• Cautious remarks from Catherine Mann temper expectations of further BoE rate cuts.
• In the Eurozone, Christine Lagarde's speech and fragile political stability in France limit the Euro's upside.

EUR/GBP remains steady below 0.8700 on Tuesday as investors turn cautious ahead of the UK inflation report due on Wednesday. The Office for National Statistics (ONS) is expected to show that the Consumer Price Index (CPI) rose by 4.0%YoY in September, up from 3.8% in August, matching the Bank of England's (BoE) projections.

This pickup in prices could reinforce the BoE's policy dilemma, as it faces persistent inflationary pressures alongside signs of a cooling labour market. Last week, Monetary Policy Committee (MPC) member Catherine Mann warned of upside risks to inflation and urged caution over additional rate cuts, noting that "the labour market has modestly loosened but it is not falling off a cliff."

On the Eurozone, the Euro (EUR) remains under pressure despite some modest political relief. The victory of French Prime Minister Sébastien Lecornu in recent no-confidence votes provided short-term support to the common currency, but the challenge of pushing a tightening budget through a deeply divided parliament continues to weigh on sentiment. Meanwhile, European Central Bank (ECB) President Christine Lagarde is due to speak later in the day, though markets expect no new guidance after several appearances last week.

In Germany, weak producer price data underline the fragility of the recovery. According to Destatis, the Producer Price Index (PPI) fell by 0.1% MoM in September, against expectations for a 0.1% increase, while the annual decline eased to -1.7% from -2.2% in August. These figures, combined with sluggish growth prospects for 2025, leave the ECB with limited room to tighten policy further.