Euro loses ground to British Pound on weak German Retail Sales as traders look ahead to BoE rate decision

• Near 0.8345, EUR/GBP edges lower in early European trading on Tuesday.
• Thursday’s November policy meeting is set to bring an interest rate increase from the BoE.
• September brought an unexpected 2.0% MoM decline in German Retail Sales.

At around 0.8345, EUR/GBP is slightly lower in Tuesday’s early European session. Hawkish expectations for Bank of England (BoE) interest rates are supporting the British Pound (GBP) against the Euro (EUR).

Economists surveyed by Reuters expect the BoE to lift Bank Rate from 3.75% to 4.0% at Thursday’s November policy meeting. Such a move would mark the first increase since August 2023, when inflation remained above the BoE’s 2% target.

For further direction, traders will look to the press conference held by BoE Governor Andrew Bailey. Hawkish remarks from the Bank’s policymakers could lend near-term support to the British Pound (GBP).

Alexander Harvey, UK economist at consultancy Oxford Economics, said: "While we don't expect a clear steer from the Committee on how many hikes they're planning, it's possible that the meeting minutes or Bailey ... signal that Bank Rate is unlikely to reach the level that is priced in by financial markets,"

A 2.0% MoM fall in German Retail Sales in September, following a 1.2% increase previously, undershot market expectations for 0.4% growth. The weaker-than-forecast release could put pressure on the EUR. On an annualised basis, September’s Retail Sales reading was -2.3%, against a 0.3% decline in August.

BoE expected to begin tightening, with guidance potentially limiting Pound gains

Thursday’s “Bank of England (BoE) policy decision and Monetary Policy Report (MPR)” is widely seen as the beginning of a fresh tightening cycle, according to strategists at Brown Brothers Harriman. They describe the BoE as “widely expected to start tightening with a 25bps hike to 4.00% after standing pat all year.” In support of the decision, they note that “firmer UK inflation and economic activity back the move,” and expect the vote to be split “7-2 with doves Alan Taylor and Swati Dhingra supporting a hold.”

The outlook for further tightening remains a potential constraint, however. BBH warns that “BoE guidance and the updated MPR will test market expectations for 100bps of tightening over the next twelve months.” The strategists argue that “persistent spare capacity across the forecast horizon would strengthen the case for pricing out hikes and limit GBP upside,” implying that subdued Bank projections could prevent a hawkish policy shift from delivering lasting Pound strength.

BoE’s Greene highlights stalled wage disinflation, sustaining GBP rate hike risks

A score of 7.4 on FXS Speechtracker puts BoE policymaker Greene’s speech exactly at Greene’s historical average. Nevertheless, its focus on stalled wage disinflation and the increased threat of second-round effects gives it a distinctly hawkish slant. With pay growth nearer 3.5%, wage disinflation stalled above levels compatible with 2% inflation, and the economy proving unexpectedly resilient, Greene’s emphasis points to little appetite for swift rate cuts and favours a stronger GBP.

Underlying inflationary pressure could prove persistent if labour market slack has already peaked, as Greene suggested. That observation reinforces the case for Greene’s call to act proactively against second-round effects. Taken together, the speech supports the view that wage pressures remain sticky and demand resilient, underpinning GBP yields and preserving upside risks for the currency.

Technical Analysis: EUR/GBP remains bearish despite oversold conditions

Trading below both the 20-period Bollinger middle band and the 100-day moving average, EUR/GBP continues to face pronounced bearish pressure on the daily chart. A closely packed group of overhead resistance levels is constraining rallies. Meanwhile, the Relative Strength Index (14), at around 22.7, is firmly oversold. Although downward momentum remains strong, this leaves scope for short-covering rebounds; a lasting recovery would require the pair to regain key resistance.

The Bollinger middle band near 0.8405 provides the first upside hurdle, ahead of the upper band around 0.8500. Beyond those levels, the 100-day moving average at 0.8535 presents a more substantial obstacle to a corrective rise. Immediate support lies at the lower Bollinger band, approximately 0.8310. A convincing break beneath it would clear the way for the downtrend to extend towards new lows.

(The technical analysis of this story was written with the help of an AI tool. Learn more.)