• EUR/GBP may appreciate as higher Eurozone inflation has bolstered chances of the ECB adopting a cautious approach to rate cuts.
• The ECB has emphasized that inflationary pressures remain high, driven mainly by wage growth.
• The UK’s Office for Business Responsibility has raised its 2024 inflation forecast to 2.5%, up from March estimates of 2.2%.

EUR/GBP inches lower after two days of gains, trading around 0.8430 during the early European hours on Friday. This downside of the EUR/GBP cross could be limited as unexpected increase in Eurozone inflation has bolstered expectations that the European Central Bank (ECB) will maintain a cautious approach to rate cuts, steering clear of significant reductions.

The preliminary Eurozone Harmonized Index of Consumer Prices increased to 2.0% year-over-year in October, up from the previous 1.7% reading and surpassing forecasts of 1.9%. The core inflation rate held steady at 2.7% year-over-year. This rise in inflation is supported by stronger-than-anticipated economic growth, with the Eurozone economy expanding by 0.4% quarter-on-quarter in Q3, twice the growth seen in Q2 and exceeding predictions of 0.2%.

The ECB has highlighted that inflationary pressures remain elevated, primarily due to wage growth. In its recent October meeting, the ECB reaffirmed its commitment to a "data-dependent and meeting-by-meeting" strategy for future policy decisions.