EUR/GBP slides as UK PMIs and Retail Sales beat expectations

• EUR/GBP weakens as strong UK PMI and Retail Sales data lift Sterling across the board.
• BoE’s Greene strikes a cautious tone on disinflation, cooling near-term rate cut bets.
• Eurozone PMI data remain mixed, while ECB rate expectations stay anchored near 2.00%.

The Euro (EUR) weakens against the British Pound (GBP) on Friday, with Sterling outperforming its major peers after stronger-than-expected UK economic data. At the time of writing, EUR/GBP is trading around 0.8677 after climbing to a three-week high near 0.8745 earlier this week.

Preliminary S&P Global Purchasing Managers Index (PMI) figures signaled a sharp improvement in UK business activity at the start of the year. The flash Composite PMI rose to 53.9 in January from 51.4 in December, marking the strongest expansion in private-sector output since April 2024.

The services sector led the upturn, with the flash Services PMI climbing to 54.3 from 51.4, a 21-month high, while manufacturing conditions continued to stabilize, as the flash Manufacturing PMI improved to 51.6 from 50.6, the strongest reading in 17 months.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said the January flash PMI is “indicative of a robust quarterly GDP growth approaching 0.4%.”

UK Retail Sales data also surprised to the upside. Figures from the Office for National Statistics showed Retail Sales rose 0.4% MoM in December, rebounding from a 0.1% decline in November. On an annual basis, sales accelerated to 2.5% from 1.8% (revised up from 0.6%), above market expectations of 1.0%.

Retail Sales excluding fuel rose 0.3% MoM in December, beating forecasts for a 0.2% decline after falling 0.4% in November, while the annual rate accelerated to 3.1% from 2.6% (revised up from 1.2%), also above expectations of 1.4%.

Comments from Bank of England (BoE) policymaker Megan Greene added to Sterling’s support. Greene said she is now less concerned about weakening demand, warning instead that the greater risk lies in a slowdown in disinflation, adding that looser Federal Reserve policy could push UK inflation higher.

The upbeat data and Greene’s remarks have tempered near-term rate cut expectations, reinforcing the view that the Bank of England can afford to remain patient before easing further.

On the Euro side, preliminary HCOB PMI figures painted a mixed picture of economic momentum across the Eurozone. The flash Composite PMI came in at 51.5 in January, slightly below market expectations of 51.6 and unchanged from December.

Manufacturing PMI rose to 49.4 in January from 48.8 in December, slightly above expectations of 49.0, while the Services PMI slipped to 51.9 from 52.4, missing forecasts of 52.8.

On the monetary policy front, a report published by BHH said the ECB is in a good position to keep interest rates on hold for some time. The swaps curve is pricing in a steady ECB deposit rate at 2.00% over the next twelve months.