EUR/GBP strengthens to around 0.8570 in Monday’s early European session.
Weaker-than-expected UK Retail Sales continue to undermine the Pound Sterling and create a tailwind for the cross.
The ECB signaled a pause in rate cuts despite low inflation.
The EUR/GBP cross trades in positive territory near 0.8570 during the early European trading hours on Monday. The Pound Sterling (GBP) weakens against the Euro (EUR) as UK Retail Sales declined more than expected in May. Traders will keep an eye on the preliminary reading of the Purchasing Managers Index (PMI) for June from the Eurozone and the United Kingdom, which will be released later on Monday.
The Bank of England (BoE) decided to keep rates at 4.25% at its June policy meeting last week, as widely expected. BoE Governor Andrew Bailey said that interest rates remain on a gradual downward path but warned, "The world is highly unpredictable.” The downbeat UK Retail Sales might encourage traders to raise their bets for further rate cuts by the BoE, which might drag the GBP lower.
Economists polled by Reuters widely expect BOE policymakers to cut rates by 25 basis points (bps) at the next gathering in August and to reduce another 25 bps in the fourth quarter.
On the Euro front, the European Central Bank (ECB) signaled a pause in policy easing this month despite projections showing price growth dropping below its 2% target. This, in turn, could provide some support to the shared currency.
ECB Francois Villeroy de Galhau said on Thursday that the central bank would monitor the situation for signs of a spillover from energy prices into underlying inflation and broader price expectations, which could prompt it to adapt monetary policy accordingly.
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