EUR/GBP drops below 0.8400 after UK retail sales data

• EUR/GBP extends decline as GBP gains support from BoE’s decision to hold interest rates.
• UK retail sales rose 1.0% month-on-month in August, recovering from an earlier fall of 0.5%.
• Germany’s Producer Price Index (PPI) (MoM) recorded a steady increase of 0.2% in August.

The EUR/GBP continues to lose ground, trading around 0.8390 during Asian hours on Friday, following the release of UK retail sales data for August. Retail sales rose 1.0% MoM, recovering from a previous 0.5% decline and beating the expected 0.4% increase. Meanwhile, the annualized rate rose to 2.5%, from the previous 1.5% increase.

The British Pound (GBP) received support from the Bank of England’s (BoE) decision to hold its interest rate at 5% on Thursday, as widely anticipated. The BoE had previously signalled the possibility of rate cuts in early summer with a quarter-point reduction at the last meeting, but this move may have been premature.

Of the nine-member Monetary Policy Committee (MPC), BoE external member Swati Dhingra voted to cut interest rates for the second time in a row, while the other members supported keeping rates at their current levels. Investors had anticipated that two MPC members would back a dovish policy decision.

On the euro side, Germany’s Producer Price Index (PPI) showed a steady increase of 0.2% month-on-month. However, the annual PPI declined by 0.8%, below the 1.0% expected. Traders are likely to focus on European Central Bank (ECB) President Christine Lagarde’s speech at the Michel Camdessus Central Banking Conference in Washington, DC, on Friday.

European Central Bank (ECB) policymakers are divided over the pace of policy easing due to differing views on the inflation outlook. ECB Governing Council member Peter Kazimir and Deutsche Bundesbank President Joachim Nagel have expressed a desire to see more evidence that inflation will return to the levels the bank is targeting, according to Reuters.