German retail sales, inflation data provide mixed picture for ECB

The Euro firmed against the British Pound on Friday, with EURGBP currency pair holding above the 100-day simple moving average (SMA) near 0.8415.

This week saw notable contrasts between the U.K. and the Eurozone, particularly as markets factor in how the Bank of England and the European Central Bank are likely to approach the coming months.

Germany’s April retail sales fell by 1.1% MoM, a sharper drop than the 0.2% increase that had been expected. Despite the weak monthly figure, the annual reading came in stronger than forecast at 2.3%, providing some reassurance that underlying demand hasn’t collapsed.

The Preliminary Consumer Price Index (CPI) figures for May were in line with expectations, matching forecasts on both a monthly and yearly basis.

However, the preliminary Harmonised Index of Consumer Prices (HICP) — which reflects inflation in a format standardised across European Union member states — rose by 0.2% MoM (vs. 0.1% forecast) and 2.1% YoY (vs. 2.0% forecast).

Overall, the data paints a picture of a sluggish consumer environment with inflation still running a little hotter than ideal, keeping pressure on the ECB as it assesses when to place its monetary easy policy on hold.

Meanwhile, recent Inflation data released from the UK this week surprised to the upside. Additionally, the IMF raised its growth outlook for the UK on Tuesday, leading to expectations that the BoE may hold rates steady for a longer period.

The monetary policy divergence remains a key theme for EURGBP, contributing to the potential direction of the pair in the near term.

(Source: OANDA)