EUR/GBP rebounds from 0.8620 ahead of German Retail Sales

• EUR/GBP sees sideways in a 40-pip range broadly ahead of German Retail Sales.
• A surprise decline in Eurozone inflation has weakened hawkish ECB bets.
• The sentiment of UK households was dampened as food inflation soared to a 45-year high.

The EUR/GBP pair has picked bids after dropping to near 0.8620 in the Asian session. The asset has been broadly sideways in a 0.8620-0.8660 range for the past three trading sessions despite a decline in the Eurozone Harmonized Index of Consumer Prices (HICP). A recovery move in the cross is feeble for now and requires more filters to be stronger.

On Wednesday, the headline Eurozone HICP released lower at 10.0% than the expectations of 10.4% and the prior release of 10.6%. Ease in energy prices after electrifying moves resulted in a slowdown in inflationary pressures, while food prices are still solid in the Eurozone economy. The core HICP numbers remained flat at 5.0% due to supply chain bottlenecks.

Meanwhile, the European Central Bank (ECB) policymakers are worried about wage increments. At a point of time when inflationary pressures will cool down, higher wages will stay, which could de-anchor long-term inflation expectations.

A decline in the preliminary November inflation report has cemented a drop in rate hike extent to 50 basis points (bps), as suggested by Commerzbank.

Also, an unfavorable German unemployment report supports a decline in an interest rate hike by the ECB in its December monetary policy meeting.

Going forward, investors will keep an eye on German Retail Sales data. The economic data is expected to expand its contraction to 2.8% vs. a prior contraction of 0.9% on an annual basis. Also, monthly figures are expected to contract by 0.6% against an expansion of 0.9%. A decline in retail demand will delight ECB policymakers.

On the United Kingdom front, 45-year high annual growth in food inflation to 12.4% in November, released by the British Retail Consortium (BRC), has dampened sentiment of households as they will be unable to offset higher food prices with subdued earnings.

Responding to the figures, BRC chief executive Helen Dickinson said: “Winter looks increasingly bleak as pressures on prices continue unabated”, as reported by Financial Times. This might impact Pound Sterling ahead.