EUR/GBP sustains above 0.8700 as ECB sees more rate hikes ahead, UK Retail Sales eyed

• EUR/GBP has shifted its auction comfortably above 0.8700 ahead of UK Retail Sales.
• ECB Knot believes that the central bank needs to raise the policy rate at least two more times.
• The German economy has entered into recession after posting two consecutive GDP contractions quarterly.

The EUR/GBP pair has comfortably shifted above the round-level resistance of 0.8700 in the Asian session. The asset has gained significant strength as the European Central Bank (ECB) is expected to announce more interest rate hikes ahead to tame stubborn Eurozone inflation.

On Thursday, European Central Bank (ECB) policymaker Klaas Knot said that the ECB needs to raise the policy rate at least two more times, as reported by Reuters. He further argued that rates should stay put for a significant period of time following these increases.

Investors should note that ECB President Christine Lagarde has already announced that more than one interest rate hike is appropriate for stick inflationary pressures.

Considering Eurozone’s economic prospects, higher interest rates by the ECB have pushed the German economy into recession. On a quarterly basis, German Gross Domestic Product (GDP) contracted by 0.3% in the first quarter of CY2023. Investors should be aware that the nation also posted a contraction in Q4 last year of 0.5%. A consecutive quarterly contraction in GDP figures indicates that the economy is in a recession phase.

German Finance Minister Christian Lindner said on Thursday that comparing Germany with other highly developed economies, the economy was losing potential for growth, as reported by Reuters.

On the Pound Sterling front, investors are awaiting the release of the United Kingdom’s Retail Sales data (April). Monthly Retail Sales are seen expanding by 0.3% against a contraction of 0.9% reported last month. While annual Retail Sales are expected to contract by 2.8% vs. a contraction of 3.1%. A rebound in retail demand could fuel inflationary pressures and create more troubles for the Bank of England (BoE).