EUR/GBP struggles to gain ground ahead of German Retail Sales and CPI data

The EUR/GBP cross remains on the defensive below the mid-0.8500s during the early European session on Wednesday. Investors await the German Retail Sales and Consumer Price Index (CPI) data on Wednesday for fresh impetus. The cross currently trades around 0.8535, losing 0.05% on the day. 

The December German Retail Sales and the preliminary CPI inflation data on Wednesday could influence the European Central Bank (ECB) rate path. The CPI figure is expected to drop to 3.3% YoY from 3.7% in the previous reading, while Retail Sales is projected to increase by 0.7% in December after sliding by 2.5% in November. If the report shows weaker-than-expected data, this could exert some selling pressure on the Euro (EUR) against the British Pound (GBP). 

ECB President Christine Lagarde said on Tuesday that it’s premature to begin talking about cuts while adding that wage data would be crucial in determining when to start monetary easing. According to a Reuters analysis of LSEG data, investors have priced in nearly 60% odds of first rate cuts in April.

On the other hand, the Bank of England (BoE) will announce its monetary policy decision on Thursday. Investors anticipate the BoE to hold rates steady at 5.25% at its January meeting. While the central bank may soften its message about the prospect of future cuts, investors expect no rate cuts in the upcoming months. This, in turn, might lift the GBP and act as a headwind for the EUR/GBP cross. 

Looking ahead, market participants will keep an eye on German Retail Sales, CPI inflation, and Unemployment Rate. The BoE monetary policy meeting on Thursday will be in the spotlight. Traders will take cues from the event and find trading opportunities around the EUR/GBP cross.