EUR/GBP stretches higher to near 0.8570 ahead of the UK Retail Sales, German PPI

• EUR/GBP attempts to recover the recent losses ahead of UK Retail Sales data.
• Hot UK inflation numbers influence traders to trim their expectations for BoE rate cuts.
• ECB President Lagarde’s indication on rate cuts weighs on the Euro.

EUR/GBP rebounds from January’s low at 0.8555 marked on Thursday. The EUR/GBP cross trades higher near 0.8570 during the Asian session on Friday. The Pound Sterling struggles ahead of the Retail Sales data from the United Kingdom (UK) scheduled to be released later in the day. The monthly Retail Sales data is expected to decline by 0.5%, swinging from the previous growth of 1.3%. While the year-over-year result could increase to 1.1% from 0.1% prior.

The upbeat UK inflation data released on Wednesday provided support for the British Pound (GBP), exerting downward pressure on the EUR/GBP cross. Concurrently, traders scaled back their expectations for Bank of England (BoE) rate cuts. The market, which previously priced in an 80% likelihood of 25 basis points cut by the BoE in May on Tuesday, has now adjusted those odds to 50%. This shift in expectations could offer additional support to the GBP while acting as a headwind for the EUR/GBP cross.

On the other side, the speculations about potential rate cuts by the European Central Bank (ECB) in September are contributing to the weakening of the Euro (EUR). Market sentiment received a lift when ECB President Christine Lagarde, speaking at the World Economic Forum (WEF) in Davos, indicated that interest rate cuts could be under consideration by the summer.

President Lagarde emphasized the potential peak in the ECB's interest rates and highlighted the central bank's dependence on economic data. She acknowledged the existence of ongoing uncertainties and indicators that are not yet firmly anchored, contributing to the nuanced stance on future monetary policy. Germany's Producer Price Index (PPI) data will be eyed on Friday.