EUR/GBP Eases Despite Stronger Eurozone Inflation Data

• EUR/GBP trades slightly lower as investors reassess central bank policy outlook.

• Rising Oil prices linked to the US-Iran conflict fuel fresh global inflation concerns.

• Stronger-than-expected Eurozone inflation data offers limited support to the Euro.

The Euro (EUR) trades under mild pressure against the British Pound (GBP) on Tuesday as traders reassess the monetary policy outlook for major central banks amid inflation concerns tied to higher Oil prices driven by the US-Iran conflict. EUR/GBP is trading near 0.8710 at the time of writing, retreating from the daily high around 0.8739.

Markets are increasingly pricing in the risk of prolonged supply disruptions through the Strait of Hormuz, a key shipping route that accounts for nearly 20% of global Oil flows. Concerns escalated after an adviser to Iran’s Islamic Revolutionary Guard Corps said on Monday that Iran “will set fire to any ship attempting to pass through the Strait.”

In reaction, traders have scaled back expectations for a Bank of England (BoE) interest rate cut at the March meeting, with markets now pricing less than a 50% probability, Bloomberg reported on Monday.

The repricing is lending modest support to the Pound. However, Sterling lacks strong follow-through buying as political uncertainty in the United Kingdom persists amid renewed scrutiny over Prime Minister Keir Starmer’s leadership.

Meanwhile, stronger-than-expected inflation data offered little support to the Euro. Preliminary data released by Eurostat showed that inflation in the Eurozone picked up in February. The Core Harmonized Index of Consumer Prices (HICP), which excludes volatile food and energy prices, rose 0.8% MoM, rebounding from a 1.1% decline in January.

On an annual basis, core inflation accelerated to 2.4%, beating market expectations of 2.2%. Meanwhile, the headline HICP increased 0.7% MoM after falling 0.6% in the previous month, while the annual rate rose to 1.9%, above the 1.7% forecast.

European Central Bank (ECB) officials have also flagged the risks stemming from the US–Iran conflict. ECB policymaker Yannis Stournaras said the central bank is closely monitoring developments, adding that there is “no rush to change policy,” while warning that inflation could face upward pressure if the conflict persists.

Separately, ECB policymaker Francois Villeroy de Galhau cautioned against speculating on the next policy move, saying it would be “a mistake to predict rate moves in a hurry.”