EUR/GBP consolidates in a narrow range around 0.8560 ahead of Eurozone inflation, BoE decision

• EUR/GBP oscillates in a tight range around 0.8565, down 0.12% on the day.
• Germany's Retail Sales MoM decreased by 0.8% against the market consensus of -0.2% and 0.2% prior.
• Most economists surveyed by Reuters expect the BoE to hike rates to 5.25% from 5%, peaking at 5.75%.
• Market players will closely watch the BoE interest rate decision on Thursday.

The EUR/GBP pair consolidates in a narrow range between 0.8560-0.8580 heading into the early European session on Monday. Market participants await the inflation data from the Eurozone for a fresh cue ahead of the key event from the Bank of England (BoE) on Thursday.

On Monday, the latest data from Destatis showed that Germany's Retail Sales MoM decreased 0.8% against the market consensus of -0.2% and 0.2% prior. The bloc's Retail Sales fell 1.6% annually in June, compared to the expected 6.3% decline and May's -3.6% decline.

Last week, the European Central Bank raised interest rates by 25 basis points (bps) to 4.25%. ECB President Christine Lagarde stated that the central bank will move towards achieving a medium-term inflation target of 2%. According to Reuters on Sunday, Lagarde also said that the latest economic output figures from France, Germany, and Spain are quite encouraging.

BoE Governor Andrew Bailey said that it was crucial that we see the job through to reduce inflation. At the same time, Deputy Governor Dave Ramsden stated that inflation remained too high despite recent drops. However, most economists surveyed by Reuters last week expect rates to rise to 5.25% from 5%, peaking at 5.75%.

It’s worth noting that the Bank of England (BoE) unexpectedly raised its Bank Rate by 50 basis points (bps) to 5.00%. The additional rate hike from the BoE exacerbates concerns about the Bank's most aggressive rate hikes in three decades and their impact on the UK’s economy, which exert pressure on the Pound Sterling. The UK economy is under tremendous pressure as the property industry starts to falter as borrowing prices rise. The increasing cost constraints also impact retail orders and manufacturing activities.

The data released last week showed that economic activity in the United Kingdom was weaker than estimated. The Manufacturing PMI for July fell to 45.0 from 46.5 observed in June, worse than expected at 46.1. This figure registered the 12th straight contraction in the manufacturing sector. Meanwhile, the preliminary Services PMI declined to 51.5 from 53.0 prior and 53.7 expected.

Looking ahead, market players will closely watch the BoE interest rate decision on Thursday. Also, BOE Governor Andrew Bailey's speech could offer hints about further monetary policy and give a direction for the GBP/USD pair. Across the pond, the US Nonfarm Payroll remains in focus. The economy is expected to have created 180,000 jobs, and the unemployment rate is expected to remain at 3.6%.