EUR/GBP advances to near 0.8300 following German Retail Sales

• EUR/GBP gains ground following the economic data from Germany, the Eurozone's largest economy.
• Germany's Retail Sales grew by 2.5% YoY in November, exceeding the expected 1.9% increase and outperforming the 1.0% growth in October.
• The Pound Sterling may strengthen as traders expect the BoE to implement two 25 basis points rate cuts this year.

EUR/GBP retraces its recent losses from the previous day, trading around 0.8290 during the European session on Wednesday. The Euro remains steady after Germany, the Eurozone's largest economy, reported stronger-than-expected Retail Sales growth of 2.5% year-over-year in November, surpassing the 1.9% forecast and the 1.0% recorded in October. However, on a monthly basis, Retail Sales dipped 0.6% in November, following a 1.5% decline in October.

On Tuesday, the Eurozone Harmonized Index of Consumer Prices (HICP) rose by 2.4% year-over-year in December, up from 2.2% in November, matching market expectations. Similarly, the core HICP increased by 2.7% YoY in December, maintaining the same pace as November and aligning with forecasts.

Meanwhile, the bloc's overall HICP rebounded with a 0.4% year-over-year increase, recovering from the previous 0.3% decline. Monthly core HICP inflation also turned positive, coming in at 0.5% in December, compared to a -0.6% reading in November.

Despite rising inflation, traders continue to anticipate aggressive European Central Bank (ECB) rate cuts in 2025. This outlook could place additional selling pressure on the Euro (EUR) against its peers. The ECB is widely expected to cut rates by 25 basis points (bps) at its upcoming meeting on January 30.

However, the upside for the EUR/GBP cross may be capped, as the Pound Sterling (GBP) could find support from shifting market expectations. Traders now anticipate fewer interest rate cuts from the Bank of England (BoE), with projections lowered to just two 25bps reductions this year, compared to earlier forecasts of more than three at the beginning of last month.

On Tuesday, The British Retail Consortium (BRC) Like-For-Like Retail Sales saw a notable 3.1% increase in December 2024, a sharp rebound from the previous month's 3.4% decline. Despite the December uptick, the BRC reported that overall retail performance in the fourth quarter of 2024 remained lackluster, with year-on-year sales growth of just 0.4%. For the entire year, total retail sales increased by 0.7%, while like-for-like sales rose by a modest 0.5%.