EUR/GBP retraces its recent gains, trading around 0.8390 during the Asian session on Friday. This downside could be attributed to the lower inflation reading in the Eurozone increasing expectations of a rate cut by the European Central Bank (ECB) in October, which would mark the central bank's third reduction this year.

Earlier this week, the Harmonized Index of Consumer Prices dropped to 1.8% year-over-year in September, falling below the ECB’s 2% target and lowest since April 2021. Markets reflect a 95% probability of a 25 basis point rate cut this month.

However, the EUR/GBP cross gained ground following the dovish comments by Bank of England (BoE) Governor Andrew Bailey on Thursday. BoE Governor Bailey said the prospect of the central bank becoming a “bit more aggressive” in cutting interest rates as the development of inflation continued to be good. The Bank of England is widely expected to cut the policy rate by 25 bps at the November meeting.

The latest Bank of England Decision Maker Panel (DMP) survey, released on Thursday, indicated that "one-year ahead expected CPI inflation by UK firms declined by an additional 0.1% to 2.6% in the quarter to September." Expected year-ahead wage growth remained steady at 4.1% on a three-month moving average in September, while business uncertainty decreased over the same period.

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