EUR/GBP looks to expand gains on BoE dovish remarks, trades higher around 0.8580

• EUR/GBP extends gains after the Eurozone’s moderate Retail Sales.
• BoE Governor Bailey advocated nearing the end of the interest rate-hike cycle.
• Investor sentiment is mixed regarding the ECB policy decision.

EUR/GBP extends its gains on the second day, trading higher around 0.8580 during the Asian session on Thursday. The pair experienced upward support after the release of the Eurozone’s moderate Retail Sales for July on Wednesday.

However, the Pound Sterling (GBP) is under pressure due to the Bank of England (BoE) Governor Andrew Bailey’s statement that the central bank is nearing the end of its series of interest rate increases. During his testimony to Parliament, Bailey and two members of the Monetary Policy Committee (MPC) expressed concerns that further tightening of monetary policy could potentially lead to an unnecessarily severe economic recession.

As mentioned earlier, Eurostat showed the performance of the retail sector remained consistent at -1% against the expectations of -1.2%. The monthly rate reported a decline of -0.2% as expected, swinging from the 0.2% growth prior.

Investor sentiment regarding the European Central Bank (ECB) is currently divided on the policy decision by the European Central Bank (ECB) in the upcoming meeting. Furthermore, Klaas Knot, a member of the ECB Governing Council, shared his perspective with Bloomberg, suggesting that market participants are underestimating the likelihood of an interest rate hike in the coming week. This implies that there is a degree of uncertainty in the market regarding the ECB's upcoming interest rate decisions.

It's worth noting that another ECB Governing Council member, Francois Villeroy de Galhau, has reiterated the idea that the ECB is approaching the peak of interest rates. Villeroy also mentioned that the ECB's decisions regarding interest rates are still open for discussion at the next few rate meetings. This implies that the ECB is carefully considering its options for future monetary policy, and the timing and direction of interest rate changes remain subjects of deliberation within the central bank.

Investors will likely watch the upcoming data releases, including Germany’s Industrial Production for July and the final readings of the Eurozone Gross Domestic Product (GDP) for the second quarter (Q2). These datasets may provide clearer directions to the EUR/GBP pair.