Euro pulls back against a firmer British Pound following hawkish BoE rhetoric

EUR/GBP tests support at previous highs around 0.8585 after rejection above 0.8600.
The Pound bounced up across the board on Thursday, buoyed by hawkish comments by BoE's Pill.
Eurozone Retail Sales and BoE Governor Bailey's comments will set the fundamental background for the pair later in the day.

Guillermo Alcala FXStreet

The Euro (EUR) trades lower against the British Pound (GBP) on Friday, snapping a four-day rally, after hawkish comments from Bank of England (BoE) committee member Huw Pill provided a fresh boost for the Cable on Thursday. The EUR/GBP pair retreated from one-month highs, a few pips above 0.8600, and is testing support at a previous resistance area around 0.8585 at the time of writing.

Pill reiterated the need to raise the BoE’s bank rate to 4%, at a roundtable in the Edinburgh Chamber of Commerce as, in his opinion, “clear, prompt and decisive policy action and communication would help steer markets and reduce uncertainty.” The Sterling rallied against its main peers following those comments.

Eurozone Retail Sales and BoE Governor Bayley eyed

In the Eurozone, data from Germany released earlier in the day showed that Factory Orders increased 2.5% in July, well above the 0.3% rise forecast by market analysts, following a 3.7% gain in June. The main reason for the positive surprise was the higher orders for large transport equipment, such as ships, trains and military vehicles, which rose 124.6% in July.

In a few hours, Eurozone Retail Sales are expected to show that consumption bounced up 0.3% in July, reversing June’s 0.3% drop. At the same time, European Central Bank (ECB) member Philip Lane is expected to meet the press and likely reaffirm the bank's will to hike interest rates further at its next meeting.

In the UK, the focus will be on August’s S&P Global Construction Purchasing Managers Index (PMI) report, which is expected to show that the sector’s activity contracted for the fifth month in a row, although at a softer pace than in July. A few minutes later, BoE Governor Andrew Bailey, who is likely to put Pill’s comments into context.

Economic Indicator

Retail Sales (MoM)

The Retail Sales data, released by Eurostat on a monthly basis, measures the volume of retail sales in the Eurozone. It shows the performance of the retail sector in the short term, which accounts for around 5% of the total value added of the Eurozone economies. Retail Sales data is widely followed as an indicator of consumer spending. Percent changes reflect the rate of changes in such sales, with the MoM reading comparing sales volumes in the reference month with the prior month. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish

Economic Indicator

BoE's Governor Bailey speech

Andrew Bailey is the Bank of England's Governor. He took office on March 16th, 2020, at the end of Mark Carney's term. Bailey was serving as the Chief Executive of the Financial Conduct Authority before being designated. This British central banker was also the Deputy Governor of the Bank of England from April 2013 to July 2016 and the Chief Cashier of the Bank of England from January 2004 until April 2011.

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