EUR/GBP displays a short-lived pullback around 0.8650, focus shifts to UK Retail Sales

• EUR/GBP has displayed a pullback move to near 0.8650, downside remains favored on stagflation fears.
• A one-time decline in the inflation rate is not sufficient to delight BOE policymakers.
• The ECB will remain more data-dependent in hiking interest rates further.

The EUR/GBP pair has witnessed a rebound after declining to a low of 0.8626. The asset has scaled higher gradually, which indicates that the pullback move is less-confident and won’t turn into a reversal ahead. On Wednesday, the cross witnessed a steep fall after the release of above-expected UK inflation data.

The plain-vanilla UK inflation rate that inculcates the volatile food and energy prices shifted lower to 9.9% vs. the prior release of 10.1% and also remained lower than the forecast of 10.2%. It is worth noting that the headline UK Consumer Price Index (CPI) has slipped lower in times when households are facing the headwinds of energy bills.

Next UK Prime Minister Liz Truss announced stimulus packages to safeguard households from skyrocketing energy bills but its impact has yet to be recorded. Therefore, a decline in the CPI figure is an unexpected bounty.  Investors should not start pouring funds into sterling vigorously as a one-time decline in the inflation rate is not sufficient to trim hurdles of the Bank of England (BOE) policymakers.

On Friday, the UK Office for National Statistics will report the Retail Sales data. The economic data is expected to display a decline of 4.2% against a decline of 3.4% reported earlier on an annual basis. Also, the monthly figure will display a decline of 0.5% against a rise of 0.3% reported earlier.

Meanwhile, the shared currency bulls are in anxiety about the soaring odds of stagflation in the Eurozone. European Central Bank (ECB) member Robert Holzmann cited that the odds of stagflation are soaring. He further added that the ECB underestimated the pace of the inflation rate but will remain more data-dependent for further hikes.