Euro Recovers Against Pound Amid Hot German Inflation Data

The Euro has partially recovered from its session lows against the British Pound after hot German inflation data was released on Wednesday. The EUR/GBP pair rose above 0.8540, but the immediate bearish momentum remains intact.

The German Statistics Office confirmed that the Harmonised Index of Consumer Prices (HICP) accelerated to a 2.8% year-over-year rate in July, from 2.4% in June. Energy inflation jumped to 7.3% in the 12 months to July, from 2.7% in June.

The Pound is faring better than the Euro due to growing tensions in the Middle East, where Iran-backed Houthi militants attacked an Egyptian vessel in the Red Sea, killing some of its crew members. This has pushed oil prices higher, with Brent Oil appreciating to levels beyond $88.00 on Wednesday.

UK rate expectations are seen as vulnerable without a GDP upside surprise, according to strategists at Brown Brothers Harriman. The BoE is projecting a softer print of 0.3% q/q in Q2, and absent a GDP beat, UK rate pricing looks vulnerable to a dovish repricing against the Pound.