EUR/GBP recovers to 0.8530 as ECB's Schnabel disagrees with July rate cuts.

• EUR/GBP bounces to 0.8530 as ECB member Isabel Schnabel doubts rate cuts in July.
• The Euro has strengthened due to strong preliminary Eurozone PMI data for May.
• Weak UK retail sales limit the upside in the Pound.

The EUR/GBP pair recovers from the psychological support of 0.8500 and returns to 0.8530 in the New York session on Friday. The cross finds buying interest as investors remain uncertain whether the European Central Bank (ECB) will extend the policy tightening period to the next monetary policy meetings.

It is widely anticipated that the ECB will begin reducing interest rates from the June meeting. Investors are therefore focused on whether the ECB will follow the same path at the July meeting. At Friday's European session, ECB Governing Council member Isabel Schnabel said the central bank's adaptation of an aggressive cycle of rate cuts could have significant consequences. She agreed that there is a notable decline in price pressures, but some elements such as domestic and services inflation still persist.

Meanwhile, the consistently rising Eurozone PMI numbers are also a major factor behind the Euro's strength. HCOB's preliminary PMI printout showed that composite PMI data rose at the fastest pace in just over two years after two months of slower growth, suggesting the economy is on track to post a solid GDP gain. Gross Domestic Product (GDP) in the second quarter.

On the UK front, the Pound is struggling to outperform the Euro as May's weak preliminary PMI and poor April retail sales data have raised concerns about the economic outlook. The country's Office for National Statistics (ONS) reported that monthly retail sales declined at a faster rate of 2.3%. Investors forecast the economic data would have declined 0.4% from the previous reading of 0.2%. Annual retail sales contracted 2.7% after expanding at a 0.4% pace in March.

This has raised expectations that the Bank of England (BoE) will lean towards interest rate cuts at its June meeting. Earlier this week, traders reduced bets leaning toward rate cuts at the June meeting after April inflation data softened at a slower pace than market participants had forecast.