EUR/GBP Slides as Eurozone Inflation Fears Rise, UK Data Mixed

The EUR/GBP currency pair slipped to around 0.8550 (-0.3%), as investors weighed rising Eurozone inflation fears against mixed UK economic signals. The market focus is on divergent monetary policy expectations between the ECB and the Bank of England, with traders preparing for potential EUR/GBP volatility from inflation surprises. Eurozone inflation accelerated: headline CPI hit 2.8% YoY (above the ECB 2% target for the eighth straight month). Core inflation stayed at 2.5%, while services inflation remained sticky at 3.1%. These readings are pushing expectations toward a more restrictive ECB stance for longer, with markets pricing roughly a 40% chance of additional rate hikes before year-end. In the UK, the data mix reduced conviction. Retail sales surprised to +0.8% MoM, beating forecasts, while manufacturing production fell -0.5%. Services PMI stayed expansionary at 52.4, but construction contracted for a third month. Wage growth moderated to 5.7% and unemployment held at 4.2%. Bank of England rate-cut timing is still seen as “early 2026” and remains highly data-dependent. Technically, EUR/GBP is testing support near 0.8540 and has shown three weeks of marginal declines, with average daily volatility around 0.4%. The 50-day and 200-day moving averages sit at 0.8575 and 0.8520, keeping price action range-bound between these levels. Overall, EUR/GBP remains sensitive to inflation differentials, and traders should monitor services inflation, wage data, and central-bank communication as the next volatility catalysts.