EUR/GBP improves to near 0.8580 on expected hawkish stance by ECB

EUR/GBP extends its gains for the second successive session on Monday, trading higher near 0.8580 during the European trading hours. The EUR/GBP pair received upward support as the European Central Bank (ECB) is expected to not adjust its monetary policy in Thursday’s meeting.

ECB President Christine Lagarde has shifted expectations for a rate cut to late summer, citing caution due to higher inflation levels that exceed the central bank's target. The members of the European Central Bank Governing Council are exercising caution to avoid prematurely easing financial conditions.

The British Pound (GBP) faced challenges against the Euro (EUR) following the release of vulnerable Retail Sales data for December by the United Kingdom (UK) Office for National Statistics (ONS) on Friday. The month-over-month (MoM) UK Retail Sales registered a decline of 3.2%, contrasting with the previous increase of 1.4%. On a year-over-year basis, Retail Sales fell by 2.4%, compared to the previous growth of 0.2%.

The significant decline in UK Retail Sales signals deep economic challenges, accompanied by elevated price pressures. The outlook for the UK economy appears pessimistic, raising concerns about the possibility of a technical recession. In this context, policymakers at the Bank of England (BoE) face a challenging dilemma. This balancing act requires a careful approach from the BoE regarding potential rate cuts.