EUR/GBP rises to near 0.8700 following UK CPI data

• EUR/GBP gains ground as the UK Consumer Price Index rose 3.8% YoY in September, against the 4.0% expected.
• The Pound Sterling struggled as UK government borrowing exceeded expectations by £7.2 billion in the fiscal year's first half.
• Traders await speeches from ECB officials this week for clues on the policy outlook.

EUR/GBP appreciates after three days of losses, trading around 0.8700 during the Asian hours on Wednesday. The currency cross receives support as the Pound Sterling (GBP) faces challenges following the release of the United Kingdom's (UK) Consumer Price Index (CPI) and Retail Price Index data for September.

The UK headline Consumer Price Index (CPI) rose 3.8% year-over-year (YoY) in September, against the market expectations of a 4.0% increase in the reported period. The reading was well above the Bank of England's (BoE) 2% inflation target. Meanwhile, the core CPI (excluding volatile food and energy items) rose 3.5% YoY, compared to August's 3.6% print, while missing the forecast of 3.7%.

The UK government borrowed £7.2 billion more than expected in the first half of the fiscal year, with the budget deficit rising to £99.8 billion. This exceeded the Office for Budget Responsibility's (OBR) £92.6 billion forecast, as debt interest payments surged 66% to £9.7 billion in September -- the highest on record for the month.

Traders adopt caution ahead of a series of speeches from European Central Bank (ECB) officials this week for clues on the policy outlook. The ECB will enter its pre-meeting blackout period on Thursday ahead of next week's policy decision. Traders have increased bets on monetary easing, fully pricing in a 25-basis-point rate cut by July 2026.

Traders remain cautious after S&P Global lowered France's credit rating to A+ from AA-, citing "elevated" budget uncertainty despite the government's submission of its 2025 draft budget. The downgrade followed a week of political turmoil where French Prime Minister Sebastien Lecornu barely survived two no-confidence votes in parliament after sacrificing President Emmanuel Macron's unpopular 2023 pension reform.