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After a perpendicular sell-off during the Asian session, the EUR/GBP pair's auction has moved below the round-level support of 0.8600. After German Inflation slowed more than anticipated, the cross was actively traded on Wednesday.

The German economy, which is already in recession after two consecutive quarters of declining Gross Domestic Product (GDP) figures, reported 0.2% deflation in May, which may be the result of sluggish retail demand and higher European Central Bank (ECB) interest rates. The annual preliminary German Harmonized Index of Consumer Prices (HICP) unexpectedly decreased to 6.3% from 6.8% and 7.5% in the previous release.

Christine Lagarde, president of the European Central Bank, stated that more than one interest rate increase is necessary to curb Eurozone inflation. However, new information is diminishing longer-term hawkish ECB forecasts. However, ECB policymaker Madis Muller stated on Wednesday, "It is highly probable that the ECB will raise rates by 25 basis points multiple times as core inflation remains stubborn."

Eurozone Inflation (May) will remain a focal point moving forward. Analysts at Societe Generale stated, "We expect the May inflation data to show another significant drop in headline inflation, from 7% yoy in April to 6% in May." Meanwhile, we believe that easing goods inflation will contribute to a decline in core inflation from 5.6% to 5.5%, with a downside risk of 5.4%, which will increase the pressure on the ECB to implement additional rate rises.

Meanwhile, persistent inflation in the United Kingdom would force the Bank of England (BoE) to maintain its hawkish stance for an extended period. Inflation in the United Kingdom decreased to 8.7% in April, but it is anticipated to fall short of Prime Minister Rishi Sunak's goal of halving inflation by the end of the year, as food inflation remains near its 46-year high and labor shortages remain a concern.

Catherine Mann, a member of the Bank of England's Monetary Policy Committee (MPC), stated on Wednesday that the disparity between headline and core inflation in the United Kingdom is more persistent than in the United States and the Eurozone, as reported by Reuters. She added that companies will use it if they have a high degree of pricing power and that they will continue on a path with "awful a lot of volatility."

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