The EUR/GBP cross extends its upside to around 0.8450 on Friday during the early European trading hours. The Pound Sterling (GBP) weakens after the UK Retail Sales data for December. The attention will shift to the Eurozone Current Account and Harmonized Index of Consumer Prices (HICP), which are due later on Friday. 

Data released by the Office for National Statistics on Friday showed that UK Retail Sales unexpectedly declined 0.3% MoM in December after growing 0.1% (revised from 0.2%) in November. Markets estimated an increase of 0.4% in the reported month. 

On an annual basis, Retail Sales in the UK climbed 3.6% in December, compared to 0% in November (revised from 0.5%), below the market consensus of 4.2%. The GBP attracts some sellers in an immediate reaction to the downbeat Retail Sales report. 

Meanwhile, the Bank of England (BoE) has room to ease further and support economic activity as inflation is cooling. The BoE policymaker Alan Taylor said on Wednesday, “We are in the last half mile on inflation, but with the economy weakening, it’s time to get interest rates back toward normal to sustain a soft landing.” 

The market is pricing almost 90% odds of a 25 bp cut in February and a total of 50 bp of cuts over the next 12 months (but now edging towards 75 bp). Traders see a nearly 90% chance that the BoE will cut interest rates by 25 basis points (bps) to 4.5% at the February meeting and a total of 50 bps reductions over the next 12 months. 

On the Euro front, the European Central Bank (ECB) Monetary Policy Meeting Accounts released on Thursday showed that policymakers agreed in the December meeting that interest rate cuts should be approached cautiously and gradually, but they also noted that further rate cuts were likely coming given weakening price pressures. 

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