EUR/GBP falls to near 0.8400 ahead of Eurozone retail sales

• EUR/GBP inches lower on growing odds of ECB rate cut in September.
• The eurozone producer price index rose 0.8% month-on-month in July, the biggest increase since December 2022.
• Sterling strengthens as expectations grow that the BoE will remain more hawkish compared to the ECB.

EUR/GBP is giving away recent gains from the previous session, trading around 0.8420 during Asian hours on Thursday. Traders await eurozone retail sales data, scheduled to be released later in the day.

The downside in the EUR/GBP cross could be attributed to increased speculation that the European Central Bank (ECB) will cut interest rates in September. The rate cut by the ECB would mark the second rate cut by the ECB since it began moving toward policy normalization in June.

In the euro zone, the producer price index (PPI) rose 0.8% month-on-month in July, the biggest increase since December 2022. This follows an upwardly revised 0.6% rise in June and was well ahead of forecasts of the market by 0.3%.

However, the Eurozone services PMI fell to 52.9 in August from 53.3 the previous month. Meanwhile, the composite PMI fell to 51.0, missing expectations and falling below the previous reading of 51.2.

Sterling (GBP) continues to advance on rising expectations that the Bank of England’s (BoE’s) rate cut cycle is more likely to be slower than the European Central Bank’s. Bets were lifted by Tuesday’s BRC Like-for-Like retail sales, which rose 0.8% year-on-year in August from a 0.3% rise in July, marking the fastest rise from five months.

Meanwhile, there was positive sentiment from the UK macroeconomic side as a purchasing managers’ index (PMI) survey showed business activity in August accelerated at the fastest pace since April.

On Wednesday, the S&P Global UK Composite PMI rose to 53.8 in August, up from 53.4 the previous month and revised higher from the preliminary estimate of 53.4. The PMI for services rose to 53.7 in August, compared to 53.3 the previous month. Data showed on Monday that the manufacturing PMI held steady at 52.5 for August, in line with preliminary estimates.