EUR/GBP edges lower as mix Eurozone HICP keeps ECB’s policy outlook uncertain

• EUR/GBP drops from 0.8500 after the annual Eurozone headline HICP decelerated expectedly to 2.5%.
• ECB Muller sees further policy easing before year-end.
• The BoE is expected to start reducing interest rates in August.

The EUR/GBP pair falls back after failing to recapture the psychological resistance of 1.2500. The cross retreats after the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) report shows that price pressures were mixed in June.

According to the preliminary HICP report, headline HICP decelerated expectedly to 2.5% year-on-year from May’s reading of 2.6%. In the same period, the core HICP, which strips off volatile items, grew steadily by 2.9%. Investors expected the underlying inflation to have declined to 2.8%. These inflation readings don’t provide any cues about where price pressures are heading and won't solve the interest rate outlook puzzle.

Speaking at the European Central Bank (ECB) Forum on Central Banking on Monday, ECB President Christine Lagarde said that the central bank is not in a hurry to cut interest rates further.

Meanwhile, ECB policymaker Madis Muller also advised to be patient with further rate cuts, said in Tuesday’s European trading hours. Muller added, “We can probably cut rates again before year-end.”

On the political front, the smaller-than-expected lead of Marine Le Pen's far-right National Rally (RN) in the first round of France’s legislative elections against the Centralist alliance and Leftist has eased uncertainty over the deepening financial crisis. However, these fears could revamp again if the second-round runoffs result new government formation.

In the United Kingdom (UK) region, easing price pressures have prompted expectations for the Bank of England (BoE) to begin reducing interest rates from the August meeting. The British Retail Consortium (BRC) showed on Monday that the annual shop price inflation grew at the slowest pace of 0.2% since October 2021 in June