EUR/GBP rises to near 0.8400 as Pound Sterling weakens due to technical factors

• The EUR/GBP pair advances as the Pound Sterling extends its technical downward correction.
• The GBP may gain ground due to the increased likelihood of fewer interest rate cuts from the Bank of England.
• The Euro struggles as traders increasingly anticipate aggressive rate cuts by the European Central Bank in 2025.

EUR/GBP extends its gains for the second successive session, trading around 0.8400 during the European hours on Thursday. The EUR/GBP cross rises as the Pound Sterling (GBP) continues its technical downward correction, which began on Wednesday.

However, the downside of the British Pound could be restrained as traders anticipate fewer interest rate cuts from the Bank of England (BoE), with projections lowered to just two 25bps reductions this year, compared to earlier forecasts of more than three at the beginning of last month.

The British Retail Consortium (BRC) Like-For-Like Retail Sales saw a notable 3.1% increase in December 2024, a sharp rebound from the previous month's 3.4% decline. Despite the December uptick, the BRC reported that overall retail performance in the fourth quarter of 2024 remained lackluster, with year-on-year sales growth of just 0.4%.

The upside of the EUR/GBP cross could be limited as the Euro faces challenges as traders continue to anticipate aggressive European Central Bank (ECB) rate cuts in 2025 despite rising inflation in the Eurozone. This outlook could place additional selling pressure on the Euro (EUR) against its peers. The ECB is widely expected to cut rates by 25 basis points (bps) at its upcoming meeting on January 30.

In the Eurozone’s economic powerhouse Germany, Industrial Output jumped by 1.5% MoM, the federal statistics authority Destatis said in figures adjusted for seasonal and calendar effects, against the estimated 0.5% rebound and a 1.0% drop in October. Industrial Production fell by 2.8% year-on-year (YoY) in November versus October’s -4.2% revision. Later in the day, the Eurozone Retail Sales for November will be in focus.