Sterling Gains on Strong Retail Sales as Euro Surges, Markets Await PMI

In Friday’s European session, the euro edged higher against the pound, pushing EUR/GBP toward 0.8550 – the strongest level in two weeks. The move came even as sterling struggled against a basket of major currencies, with the Australian dollar emerging as the pound’s weakest peer.

The lift in the euro was driven by the latest UK retail sales data from the Office for National Statistics. Retail sales rose 1.0 % month‑on‑month, a surprise jump that beat the market’s expectation of a 0.3 % decline. On an annual basis, sales grew 4.2 % versus the forecast of 2.3 %, and the figure was revised upward from 3.5 % (previously 3.2 %). The robust reading has fed speculation that the Bank of England may consider further interest‑rate hikes in the coming months.

Market participants are now eyeing the preliminary S&P Global Purchasing Managers’ Index (PMI) for July, scheduled for release at 08:30 GMT. The UK Composite PMI is expected to tick up modestly to 49.7 from 49.3 in June, although a reading below 50 would still signal contraction in overall business activity. German and Eurozone flash PMI data are also on the radar, as they could sway sentiment toward the euro later in the session.

On the policy front, the European Central Bank left its rates unchanged, in line with expectations, but warned that rising energy costs could continue to exert inflationary pressure.

The combination of a resilient retail sales report, a muted euro, and cautious policy outlooks has kept sterling on a modestly upward trajectory, while the dollar cooled slightly in the broader currency market.