EUR/GBP recovers to 0.8530 as ECB Schnabel disagrees with rate cuts in July

• EUR/GBP rebounds to 0.8530 as ECB Schnabel doubts over rate cuts in July.
• The Euro has strengthened due to strong preliminary Eurozone PMI data for May.
• Weak UK Retail Sales limit the upside in the Pound Sterling.

The EUR/GBP pair bounces back from the psychological support of 0.8500 and recovers to 0.8530 in Friday’s New York session. The cross finds buying interest as investors remain uncertain about the European Central Bank (ECB) extending the policy-tightening spell to subsequent monetary policy meetings.

The ECB is widely anticipated to start reducing interest rates from the June meeting. Therefore, investors focus on whether the ECB will follow the suit in the July meeting. In Friday’s European session, ECB Governing Council member Isabel Schnabel said that the adaptation of aggressive rate-cut cycle by the central bank could have significant consequences. She agreed that there is a noticeable decline in price pressures but some elements such as domestic and service inflation are still persistent.

Meanwhile, consistently growing Eurozone PMI numbers are also a major factory behind the Euro’s strength. Early HCOB PMI print showed that the Composite PMI data rose at the fasted pace in just over two years after two months of slower growth, suggesting that the economy is on track to post solid Gross Domestic Product (GDP) gain in the second quarter.

On the United Kingdom front, the Pound Sterling struggles to outperform the Euro as weak preliminary PMI for May and poor Retail Sales data for April have raised concerns over the economic outlook. The country’s Office for National Statistics (ONS) reported that monthly Retail Sales declined at a faster pace of 2.3%. Investors forecasted the economic data to have declined by 0.4% from the prior reading of 0.2%. Annual Retail Sales contracted by 2.7% after expanding at a pace of 0.4% in March.

This has boosted expectations for the BoE pivoting to interest-rate cuts in the June meeting. Earlier this week, traders pared bets leaned towards rate-cuts in the June meeting after the inflation data for April softened at a slower pace than what market participants had forecasted.