EUR/GBP dips to 0.8660 as UK fiscal woes meet EZ inflation pressure

• EUR/GBP retreats from 0.8681 daily high, as market focus shifts to policy divergence.
• Eurozone retail sales disappoint, plunging 0.5% MoM in July, while annual growth slows sharply to 2.2%.
• ECB seen holding rates through 2025 as inflation stays high, while BoE signals further easing ahead.

The Euro retreats against the British Pound on Thursday, even though fears of an economic slowdown in the UK, hurts the prospects of the Sterling against rising inflation in the Eurozone. At the time of writing, the EUR/GBP trades at 0.8666 after hitting a daily high of 0.8681.

Euro retreats despite UK slowdown fears, with central bank divergence and fiscal uncertainty shaping near-term outlook

Economic data in the Eurozone (EZ) outweighed fears of fiscal difficulties surrounding the UK economy. Retail Sales in Europe were weaker than expected in July, plunged -0.5% MoM, below forecasts of -0.2%. In the twelve months to July, dupped from 3.5% to 2.2%, missing estimates for a 2.4% expansion.

On Wednesday, high inflation data in the EZ suggests that the European Central Bank (ECB) would not cut rates throughout the remainder of 2025. The Bank of England (BoE) Governor Andrew Bailey saying that interest rates would continue to fall. Hence, centra bank divergence favors further upside in the EUR/GBP cross-pair.

UK Finance Minister Rachel Reeves revealed that she will present the Autumn Budget on November 26. She is under pressure to keep finances on track.

Uncertainty about fiscal policy in the UK triggered a jump in yield of 30-year GILTs in the UK, which hit its highest level since 1998, as fixed income traders demanded a higher premium to park their money on UK's debt.

Ahead this week, the economic docket in Europe will feature jobs data, and Gross Domestic Product (GDP) figures for Q2 2025. In the UK, market participants will eye the release of Retail Sales for July.

EUR/GBP Price Forecast: Technical outlook

After rallying from 0.8600 towards the 0.8700 figure, the EUR/GBP pullbacks as traders take a breather. Given the fundamental backdrop and price action remaining bullish, further upside is seen. The Relative Strength Index (RSI) is bullish but tilted to the downside.

That said, the EUR/GBP might be headed for a retracement. The first support would be 0.8652 the 20-day SMA, followed by the 50-day SMA at 0.8646 and 0.8600. Conversely, if traders push the pair past 0.8650, the next resistance would be the 0.8700 mark. If surpassed, the next stop would be August 7 high at 0.8743.