Euro trims gains against British Pound as Germany’s September Retail Sales unexpectedly decline

• Early European trading on Monday sees EUR/GBP give back some gains around 0.8345.
• A 2.0% month-on-month fall in Germany’s Retail Sales in September undershot expectations.
• Thursday’s November policy meeting is expected to see the BoE raise Bank Rate to 4.0%.

Weaker German Retail Sales figures weigh slightly on the Euro (EUR), with EUR/GBP surrendering some gains near 0.8345 in Monday’s early European session. Stronger-than-expected Q3 Gross Domestic Product (GDP) readings from both the Eurozone and Germany could, however, contain the EUR’s losses.

German Retail Sales declined by 2.0% month on month in September, according to figures published by Destatis on Monday. The measure, a key gauge of consumer spending, had risen by 1.2% in August, revised from 1.3%. September’s result fell short of market forecasts for a 0.4% increase. On an annualised basis, September Retail Sales registered -2.3%, following a 0.3% decline previously, revised from -0.4.

Attention in the UK turns to Thursday’s interest rate announcement from the Bank of England (BoE). A Reuters poll of economists points to an increase in Bank Rate from 3.75% to 4.0% at the November policy meeting, which would mark the first rise since August 2023.

Alexander Harvey, UK economist at consultancy Oxford Economics, said: "While we don't expect a clear steer from the Committee on how many hikes they're planning, it's possible that the meeting minutes or Bailey ... signal that Bank Rate is unlikely to reach the level that is priced in by financial markets,"

EUR/GBP remains under pressure as UK budget could reduce gilt risk premium

A "20bp risk premium in 10-year UK gilt yields" remains embedded in UK rates, ING analysts note. Rates Strategist Michiel Tukker says this "could come out of the market during today's UK budget release." In their view, the budget "is not expected to have too much say on the Bank of England's tightening prospects," though they warn that "any upside surprises on minimum wage adjustments could hawkishly ripple through money markets."

Turning to cross-market effects, ING notes that "some narrowing in the gilt-bund spread today could be a reminder that the UK looks to be one of the few G7 economies heading in the right fiscal direction into 2027," alongside forecasts for "the budget deficit heading inside 4% of GDP as higher inflation drags more income tax payers into higher tax brackets."

In currency markets, "EUR/GBP is holding above 0.8350 support and is looking heavy," according to ING. Unless there are "any surprise budget giveaways that hit gilts," the bank anticipates that "EUR/GBP can stay heavy and potentially nudge down to the 0.8315 area."

Euro takes hawkish cue from Nagel’s inflation warning

An FXS Speechtracker score of 8.2/10 for the ECB’s Nagel stands well above the historical average of 6.9/10, indicating a more hawkish stance than usual. Expectations that monetary tightening remains firmly under consideration are reinforced by the commitment that the ECB “will take decisive action if needed to bring inflation back to target”.

Concern about persistent inflationary pressure is evident in Nagel’s remarks that consumer-price growth has accelerated again and further price rises “can’t be ruled out”. His identification of higher energy costs as a key driver lends a hawkish bias to the Euro. Should inflation fail to moderate, markets may assign a higher probability to renewed tightening or a longer period of restrictive policy.

Technical Analysis: EUR/GBP remains bearish beneath the 100-day SMA

Trading below both the 20-day Bollinger middle band and the 100-day simple moving average (SMA), EUR/GBP maintains a distinctly bearish near-term bias on the daily chart. The upper Bollinger band also sits well above the spot price, underlining the constraints on gains. Meanwhile, the Relative Strength Index (14) reading of 23 places it in oversold territory, suggesting that the sell-off is already extended despite continued downward pressure.

The lower Bollinger band around 0.8315 provides the first support on a further decline. Any recovery would initially face the 20-day Bollinger SMA near 0.8410, then the upper Bollinger band at 0.8505. Beyond these levels, the 100-day SMA at 0.8535 presents a more substantial obstacle; a move back above it would be required to soften the broader bearish bias.

(The technical analysis of this story was written with the help of an AI tool. Know more.)