EUR/GBP eases after steady inflation data; focus shifts to UK Budget

• EUR/GBP eases as traders digest inflation data from the UK and Eurozone.
• Eurozone HICP matches forecasts, keeping ECB policy expectations unchanged.
• UK inflation cools, reinforcing the case for a December BoE rate cut.

The Euro (EUR) pares back early strength against the British Pound (GBP) on Wednesday as traders digest a fresh round of inflation data from both the United Kingdom and the Eurozone. At the time of writing, EUR/GBP is trading around 0.8817, retreating from an intraday high near 0.8839.

Eurozone inflation figures offered no surprises, with October's Harmonized Index of Consumer Prices (HICP) aligning fully with expectations. Headline HICP rose 0.2% MoM, matching the 0.2% reading from September.

On an annual basis, headline inflation came in at 2.1% YoY, exactly in line with both the consensus and the 2.1% pace seen a month earlier. Core HICP was 0.3% MoM, matching the forecast and unchanged from September's 0.3% rise, while the yearly reading held at 2.4% YoY, matching expectations and consistent with last month's 2.4% reading.

The steady set of inflation figures offered little incentive for the European Central Bank (ECB) to adjust its stance, reinforcing market expectations that interest rates will remain unchanged. According to the latest Reuters poll conducted between November 14-19, 84 of 90 economists expect the ECB to keep its deposit rate at 2.00% at the December meeting.

In the United Kingdom, the latest inflation release pointed to further easing in price pressures, strengthening the case for a potential interest rate cut by the Bank of England (BoE) in December. Headline Consumer Price Index (CPI) rose 0.4% MoM in October, in line with expectations after a flat reading in September.

On a yearly basis, CPI slowed to 3.6% YoY, matching the 3.6% forecast and down from 3.8% a month earlier. Core CPI also edged lower to 3.4% YoY from 3.5%, underscoring a gradual cooling in underlying inflation.

Beyond inflation, attention now shifts to the November 26 UK Budget, a key event risk for Sterling as markets assess the government's fiscal direction. Investor sentiment remains cautious after recent shifts in tax communication, including the decision to drop a proposed income-tax rise.

Adding to the anticipation, Chancellor Rachel Reeves said today that "leaks ahead of the budget are not acceptable," stressing that next week she will make "fair choices to deliver on the public's priorities." Prime Minister Keir Starmer also weighed in, noting that the upcoming Budget will be "based on Labour values.