The EUR/GBP pair has extended its gains for the second consecutive day, trading higher around 0.8580 during the Asian session on Thursday, September 7, 2023. The uptick was supported by the release of the Eurozone's moderate Retail Sales data for July, which showed a consistent performance in the retail sector with a decline of -0.2% as expected.
However, the Pound Sterling is under pressure following Bank of England (BoE) Governor Andrew Bailey's statement that the central bank is nearing the end of its series of interest rate hikes. Bailey and two members of the Monetary Policy Committee expressed concerns during a testimony to Parliament that further tightening could potentially lead to an unnecessarily severe economic recession.
Investor sentiment is currently divided regarding the upcoming policy decision by the European Central Bank (ECB). Klaas Knot, a member of the ECB Governing Council, suggested that market participants might be underestimating the possibility of an interest rate hike in the coming week. On the other hand, another ECB Governing Council member, Francois Villeroy de Galhau, reiterated that the ECB is nearing peak interest rates and decisions regarding future hikes are still open for discussion.
Investors are awaiting further data releases including Germany's Industrial Production for July and final readings of the Eurozone Gross Domestic Product (GDP) for Q2. These datasets may provide clearer directions to the EUR/GBP pair.
On Wednesday, September 6, 2023, the GBP lost ground against other major currencies after BoE governor signaled a "much nearer" end to the bank's interest rate hike run. The BoE has raised rates at each of its last 14 meetings and is expected to raise borrowing costs again later this month, taking the bank rate to 5.5%.
In other news, equity markets fell overnight in APAC following U.S. indices. The USD continues to strengthen, keeping the Yen at a 10-month low and sterling and EUR at a three-month low. Australian foreign trade shrank in July to A$8.04 billion with goods and services exports dropping by 2% on a monthly basis while imports rose by 3%. In China, both imports and exports fell causing a decrease in trade surplus in August.
In Germany, industrial production fell more than expected in July by 0.8%, after a 1.4% fall in June. The U.K. Halifax house price index also reported a sharper than anticipated fall of 1.9% in August compared to July.
Later on Thursday, September 7, 2023, final readings of Eurozone Q2 GDP are expected to show a rise of 0.3% quarter on quarter (QoQ) and 0.6% year-on-year (YoY). In the U.S., economists anticipate initial jobless claims to have brought in 234,000 new claimants last week.
In oil news, U.S. crude continues to hold at six-month highs with inventories reporting significant draws since April totaling almost 50 million barrels. The American Petroleum Institute reported a large drop of 5.5 million barrels in U.S. Crude inventories last week alone while gasoline stocks fell by more than 5 million barrels.
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