EUR/GBP approaches 0.8600 as weak UK Retail Sales dampen economic outlook

• EUR/GBP marches towards 0.8600 on vulnerable UK Retail Sales data.
• The BoE could discuss for early interest rate cuts as recessions fears deepen.
• ECB may look for reducing interest rates from late summer.

The EUR/GBP pair is advancing towards the round-level resistance of 0.8600 in the European session. The asset has strengthened as the United Kingdom Office for National Statistics (ONS) has reported a vulnerable Retail Sales data for December.

UK households reduced their spendings significantly despite festive season as their pockets shrank due to deepening cost-of-living crisis. Higher interest rates by the Bank of England (BoE) and stubbornly stubborn inflation have dented purchasing power.

Massive decline in the UK Retail Sales indicate that the economy is in a deep trouble while price pressures remain elevated. The economy also contracted in the third quarter of 2023 as per the revised estimates from the ONS agency. The outlook for the UK economy is downbeat, therefore fears of a technical recession would keep BoE policymakers on their toes.

The BoE would struggle between higher underlying inflation and deepening recession fears, instructing to adopt a careful approach for rate cuts ahead.

On the Eurozone front, European Central Bank (ECB) President Christine Lagarde has pushed back expectations of a rate cut to late summer, cautioning higher inflation from where the central bank wants. While other ECB policymakers are still keeping interest rate cuts off the table.