EUR/GBP hits five-month highs near 0.8740

• EUR/GBP continues the bullish streak after the uninspiring economic data from the United Kingdom.
• UK retail sales fell 0.9% versus a forecast decline of 0.1%.
• Data from the German Producer Price Index reveal a decline in prices in primary markets.

The EUR/GBP cross is moving higher following weak data released by the Office for National Statistics (ONS), which reported weakness in UK retail sales in September. The pair trades higher at five-month highs around 0.8740 during the European session on Friday.

Monthly retail sales showed a drop of 0.9%, contrary to the expected decline of 0.1%. A modest increase of 0.4% was recorded in August. In annual terms, sales contracted 1.0%, defying the markets’ 0% forecasts.

This drop in retail sales is indicative of the financial strains on households due to high inflation and rising borrowing costs. The significant drop in consumer spending is likely to have a notable impact on consumers’ inflation expectations. As a result of the weakening of spending, there is speculation that the Bank of England (BoE) may be inclined to maintain current interest rates at 5.25% at the November monetary policy meeting.

Meanwhile, market participants are weighing the possibility that the European Central Bank (ECB) will suspend monetary policy rate hikes, despite inflation levels above the entity’s target and growing concerns about the risk of economic slowdown or stagflation in the European area.

In a statement on Wednesday, European Central Bank (ECB) President Christine Lagarde noted that core inflation remains strong and wage growth continues to maintain historically high levels. These factors contribute to the evolution of the Euro against the Pound sterling.

Germany’s Producer Price Index (PPI) showed a decline in prices in primary markets. The monthly figures indicate a decrease of 0.2%, which is quite far from the 0.4% increase expected for September. In year-on-year terms, the drop is even more significant, with a decline of 14.7%, exceeding the market forecast of 14.2%.