EUR/GBP rebounds ahead of Germany’s Retail Sales

The EUR/GBP pair is exhibiting mixed performance within a 40-pip range broadly ahead of German Retail Sales. A surprise decline in Eurozone inflation weakened hawkish ECB bets. The sentiment of UK households fell as food inflation soared to a 45-month high.

On Wednesday, the headline Eurozone HICP was 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 reading is still flat at 5.0% due to supply chain bottlenecks.

ECB policymakers are worried about increments in wages. 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 is supporting a decline in an interest rate hike by the ECB in its December monetary policy meeting.