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In the early Tokyo session, the EUR/GBP pair aims to extend its recovery from 0.8630 above the immediate resistance of 0.8650. The cross is strengthening in advance of Thursday's preliminary Eurozone Harmonized Index of Consumer Prices (HICP) (May) data release.

According to the preliminary report, the core monthly HICP is anticipated to increase by 0.8%, a lesser rate than the 1.0% recorded in April. The annual core HICP is anticipated to decrease to 5.5% from 5.6% previously. The headline HICP is anticipated to decline significantly to 6.3% from the previous release of 7.0%.

Inflation in the Eurozone has remained exceedingly stubborn over the past few months; one month of deceleration would not be sufficient to halt the European Central Bank's (ECB) policy tightening. Gediminas imkus, a member of the ECB Governing Council, stated on Tuesday that he anticipates a 25 basis point (bps) rate increase in June and July. This indicates that the ECB's interest rate would reach a maximum of 4.25 percent.

In addition to Thursday's Eurozone inflation data, considerable attention will be paid to ECB President Christine Lagarde's speech. At the monetary policy meeting in June, ECB Lagarde is anticipated to provide guidance on interest rates.

In the meantime, inflationary pressures in the British economy show no significant symptoms of abating. British Retail Consortium (BRC) reported on Tuesday a historic increase in shop price inflation to 9.0% since the agency's inception in 2005. As a result of lower energy and commodity costs, food price inflation slowed slightly to 19.1% from 19.2% previously.

The Bank of England (BoE) is anticipated to increase interest rates further in the near future due to the fact that the United Kingdom's inflation has not yet exhibited encouraging signals of deceleration. Nomura forecasts that BoE Governor Andrew Bailey will announce two additional quarter-point interest rate increases in the next three meetings.

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