The EUR/GBP pair continues its upward trajectory for the second session in a row, trading near 0.8400 during the European session.
The increase in the pair is attributed to the ongoing technical correction in the British pound, which began on Wednesday. However, the pound's decline might be capped, as traders expect fewer interest rate cuts from the Bank of England. Forecasts for 2024 have been revised to two 25-basis-point reductions, compared to December's earlier expectations of over three cuts.
According to the British Retail Consortium (BRC), comparable retail sales in the UK grew by 3.1% in December 2024, a significant rebound after a 3.4% drop in the previous month. However, despite the December growth, the BRC noted that overall retail performance in the fourth quarter of 2024 remained weak, with an annual increase of just 0.4%.
Meanwhile, the upward movement of the EUR/GBP pair may face resistance due to challenges for the euro. In 2025, traders anticipate aggressive rate cuts from the European Central Bank (ECB), despite rising inflation in the eurozone. The ECB is expected to reduce rates by 25 basis points at its upcoming January 30 meeting.
In Germany, the economic powerhouse of the eurozone, industrial production rose by 1.5% month-on-month, significantly exceeding the forecasted 0.5% increase and rebounding from October's 1.0% decline. However, on an annual basis, industrial production in November fell by 2.8%, compared to a revised 4.2% drop in October. Traders are also awaiting eurozone retail sales data for November, due later in the day.
From a technical perspective, oscillators on the daily chart remain in positive territory and have yet to reach the overbought zone. As a result, the path of least resistance for the pair continues to trend upward, with a potential for short-term corrections.
