• EUR/GBP drifts lower for the fourth straight day and drops to a nearly two-week low.
• Hotter-than-expected UK CPI boosts the British pound and exerts downward pressure.
• Energy supply concerns, recession fears undermine the euro and favour bearish traders.

The EUR/GBP cross prolongs its recent sharp pullback from the vicinity of the 0.8500 mark and continues losing ground for the fourth successive day on Wednesday. The cross remains depressed following the release of hotter-than-expected UK consumer inflation figures and is currently placed just below the 0.8400 mark, or a nearly two-week low.

The British pound edges higher after the UK Office for National Statistics reported that the headline CPI accelerated to the highest level since 1982 and rose 10.1% YoY in July. The reading was well above the 9.4% seen in June and 9.8% estimates, lifting bets for another rate hike by the Bank of England. This turns out to be a key factor exerting some downward pressure on the EUR/GBP cross.

That said, concerns about an economic downturn might force the UK central bank to adopt a gradual approach to raising interest rates. It is worth recalling that the BoE had warned earlier this month that a prolonged recession would start in the fourth quarter. This, in turn, held back traders from placing aggressive bullish bets around sterling and helped limit losses for the EUR/GBP cross.

The shared currency, on the other hand, remains depressed amid mounting energy supply concerns, which could drag the Eurozone economy faster and deeper into recession. This, in turn, favours bearish traders and supports prospects for a further near-term depreciating move for the EUR/GBP cross. Traders now look forward to the release of the flash (second estimate) Eurozone GDP print for a fresh impetus.

Technical levels to watch