EUR/GBP drops to near 0.8400 ahead of Eurozone Retail Sales

• EUR/GBP inches lower amid rising odds of the ECB reducing rates in September.
• Eurozone Producer Price Index increased by 0.8% MoM in July, the largest increase since December 2022.
• The British Pound strengthens as expectations grow that the BoE will remain more hawkish compared to the ECB.

EUR/GBP offers its recent gains from the previous session, trading around 0.8420 during Thursday’s Asian hours. Traders await Eurozone Retail Sales data scheduled to be released later in the day.

The downside of the EUR/GBP cross could be attributed to rising speculation that the European Central Bank (ECB) will cut interest rates in September. The ECB’s rate cut would mark the second interest rate cut by the ECB since it began shifting toward policy normalization in June.

In the Euro Area, the Producer Price Index (PPI) rose by 0.8% month-over-month in July, the largest increase since December 2022. This follows an upwardly revised 0.6% rise in June and significantly exceeds market forecasts of 0.3%.

However, the Eurozone Services PMI fell to 52.9 in August, from 53.3 in the previous month. Meanwhile, the Composite PMI decreased to 51.0, missing expectations and falling below the previous reading of 51.2.

The British Pound (GBP) advances further by rising expectations that the Bank of England's (BoE) rate-cutting cycle is more likely to be slower than the European Central Bank. The bets were lifted by Tuesday’s BRC Like-for-Like Retail Sales, which increased by 0.8% year-on-year in August, up from a 0.3% rise in July, marking the fastest growth in five months.

Meanwhile, there was positive sentiment from the UK macroeconomic front, as a Purchasing Managers Index (PMI) survey showed that business activity in August accelerated at its fastest pace since April.

On Wednesday, the S&P Global UK Composite PMI increased to 53.8 in August, up from 53.4 in the previous month and revised higher from the preliminary estimate of 53.4. The Services PMI rose to 53.7 in August, compared to 53.3 in the prior month. The data showed on Monday that the Manufacturing PMI held steady at 52.5 for August, consistent with preliminary estimates.