During the early European hours on Monday, the EUR/GBP pair struggled, trading around 0.8510, largely influenced by dovish remarks from European Central Bank (ECB) officials.
ECB Chief Economist Philip Lane, in an interview with the Financial Times, suggested that there is justification for initiating interest rate cuts. Lane emphasized the success in managing inflation but hinted at potential rate adjustments within a moderately restrictive framework.
Adding to the dovish sentiment, ECB policymaker Piero Cipollone indicated the opportune timing for an interest rate cut in June, citing favorable recent data. ECB President Christine Lagarde echoed similar sentiments, expressing confidence in Eurozone inflation control and signaling a likely rate cut next month.
On the data front, Germany’s IFO Business Climate survey for May disappointed with a reading of 89.3, below the expected 90.3 and the previous 89.4.
In the UK, the market remained closed for the Spring Bank Holiday on Monday. Despite this, the Pound Sterling (GBP) found support as traders processed lower-than-expected Retail Sales data released on Friday.
April witnessed a significant 2.3% decline in monthly retail sales volume in the UK, well below the projected 0.4% downturn. On an annual basis, sales contracted by 2.7%, compared to the expected 0.2% decrease. Additionally, GfK Consumer Confidence softened marginally to a reading of -17 in May, slightly exceeding the anticipated -18 reading and the previous -19.
However, the UK’s annual inflation rate showed signs of moderation, edging closer to the Bank of England‘s (BoE) 2% target. This easing of inflationary pressures tempered expectations of a rate cut in June among investors, potentially alleviating pressure on the Pound Sterling (GBP) and constraining downside risks for the EUR/GBP cross.
