September retail sales fall unexpectedly in Germany: Euro trims gains against British Pound

• Around 0.8345, EUR/GBP gives back some gains in early European trading on Monday.
• A 2.0% MoM decline in Germany’s Retail Sales in September undershot expectations.
• A Bank Rate increase to 4.0% is expected from the BoE at Thursday’s November policy meeting.

EUR/GBP is trading near 0.8345 as gains narrow. In Monday’s early European session, weaker German Retail Sales figures weigh slightly on the Euro (EUR). Losses in the EUR may nevertheless be contained by stronger-than-forecast Q3 Gross Domestic Product (GDP) readings from Germany and the Eurozone.

September’s German Retail Sales fell 2.0% MoM, according to Monday’s Destatis release. The consumer spending indicator had risen 1.2% in August, revised from 1.3%, while markets had forecast a 0.4% increase for September. On an annualised basis, September Retail Sales stood at -2.3%, following a 0.3% contraction in the previous period, revised from -0.4.

Thursday’s Bank of England (BoE) rate decision is the key UK event. A Reuters survey of economists points to an increase in the Bank Rate from 3.75% to 4.0% at the November policy meeting. If delivered, it would mark the first rate rise since August 2023.

Alexander Harvey, UK economist at consultancy Oxford Economics, said: "While we don't expect a clear steer from the Committee on how many hikes they're planning, it's possible that the meeting minutes or Bailey ... signal that Bank Rate is unlikely to reach the level that is priced in by financial markets,"

20bp gilt risk premium may ease with UK budget; EUR/GBP remains heavy

A "20bp risk premium in 10-year UK gilt yields" remains embedded in UK rates, ING analysts note. Rates Strategist Michiel Tukker says it "could come out of the market during today's UK budget release." In their assessment, the budget "is not expected to have too much say on the Bank of England's tightening prospects," but they warn that "any upside surprises on minimum wage adjustments could hawkishly ripple through money markets."

Turning to cross-market effects, ING says "some narrowing in the gilt-bund spread today could be a reminder that the UK looks to be one of the few G7 economies heading in the right fiscal direction into 2027," alongside forecasts for "the budget deficit heading inside 4% of GDP as higher inflation drags more income tax payers into higher tax brackets."

For currencies, ING notes that "EUR/GBP is holding above 0.8350 support and is looking heavy." Unless there are "any surprise budget giveaways that hit gilts," its expectation is that "EUR/GBP can stay heavy and potentially nudge down to the 0.8315 area."

8.2/10 Nagel score reinforces hawkish Euro bias

An 8.2/10 score for ECB’s Nagel on FXS Speechtracker exceeds the historical average of 6.9/10, indicating a more hawkish stance than usual. Expectations that tightening remains firmly under consideration are reinforced by the commitment that the ECB “will take decisive action if needed to bring inflation back to target”.

Persistent inflation remains a concern in Nagel’s remarks: consumer-price growth has accelerated again, and further increases “can’t be ruled out”. The speech identifies higher energy costs as a key driver, lending support to a hawkish Euro bias. Should inflation fail to moderate, markets may assign a higher probability to renewed tightening or a longer period of restrictive policy.

100-day SMA caps EUR/GBP: bearish technical outlook persists

Below both the 20-day Bollinger middle band and the 100-day simple moving average (SMA), EUR/GBP maintains a distinctly bearish near-term profile on the daily chart. The upper Bollinger band also sits well above spot, underscoring the limits on the upside. Meanwhile, a Relative Strength Index (14) reading of 23 places the pair in oversold territory. Selling pressure remains, but the decline already looks stretched.

The lower Bollinger band near 0.8315 provides the first downside support. Any recovery would initially face the 20-day Bollinger SMA around 0.8410, then the upper Bollinger band at 0.8505. Beyond these levels, the 100-day SMA at 0.8535 presents a more substantial obstacle. A move back above it would be needed to temper the broader bearish bias.

(The technical analysis of this story was written with the help of an AI tool. Learn more.)