Euro holds steady against British Pound as traders await Eurozone HICP data

The EUR/GBP cross trades on a flat note around 0.8645 during the early European trading hours on Tuesday. Traders prefer to wait on the sidelines ahead of the preliminary reading of the Harmonized Index of Consumer Prices (HICP) from the Eurozone, which will be published later on Tuesday. 

The Eurozone HICP inflation report could offer some clues about the European Central Bank’s (ECB) interest rate outlook. Headline inflation is projected to rise to 3.2% YoY in May from 3.0% in April. If the report shows hotter-than-expected outcomes, this could boost the Euro (EUR) against the British Pound (GBP) in the near term. 

Markets are now pricing in a high probability, nearly 92%, of a 25 basis point (bps) interest rate hike at the ECB’s next meeting on June 11, which would take the bank’s key deposit facility rate to 2.25%, and a 50% chance of another rate rise later this year in September, according to the ECB Watch Tool.

On the UK’s front, BoE governor Andrew Bailey said on Friday that the UK central bank is in no rush to raise interest rates while the outcome of the Iran war remains uncertain and the UK’s growth rate stays weak. Money market futures now imply 32 basis points (bps) of tightening this year, one quarter-point hike, and roughly a 30% chance of a second, according to Reuters.