Home Forex EUR/GBP improved to near 0.8580 on the expected hawkish stance of the ECB

EUR/GBP improved to near 0.8580 on the expected hawkish stance of the ECB

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  • EUR/GBP extends gains as ECB expected to keep monetary policy unchanged.
  • ECB President Christine Lagarde pushed back expectations for a rate cut to late summer.
  • Disappointing UK retail sales data added to downward pressure on the pound sterling.

EUR/GBP extended its gains for a second straight session on Monday, trading higher near 0.8580 during European trading hours. The EUR/GBP the pair received support to the upside as the European Central Bank (ECB) is expected to keep its pace Monetary Policy at Thursday’s meeting.

ECB President Christine Lagarde pushed back expectations for a rate cut to late summer, citing caution due to higher inflation levels that are above the central bank’s target. Members of the European Central Bank’s Governing Council are cautious to avoid premature easing of financial conditions.

The British pound (GBP) faced challenges against the euro (EUR) after the United Kingdom’s (UK) Office for National Statistics (ONS) released vulnerable retail sales data for December on Friday. Month-on-month (monthly) UK retail sales fell by 3.2%, in contrast to a previous increase of 1.4%. On a year-over-year basis, retail sales fell 2.4%, compared to a 0.2% increase previously.

A sharp decline in UK retail sales signals deep economic problems accompanied by increased price pressures. The outlook for the British 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 calls for a cautious approach by the BoE regarding possible rate cuts.

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