- EUR/GBP remains steady as traders adopt caution amid geopolitical tensions.
- ECB’s Villeroy says the central bank is closely monitoring energy markets amid Middle East tensions.
- UK risks stagflation as rising energy costs lift inflation while growth and employment stay weak.
EUR/GBP moves sideways after registering gains in the previous session, trading around 0.8700 during the Asian hours on Thursday. The currency cross remains subdued ahead of the Eurozone Retail Sales data release later in the day.
The annual Eurozone Retail Sales is expected to increase by 1.7% in January, following the 1.3% rise in December, while the monthly figure is expected to come at 0.3%, against the previous 0.5% decline.
European Central Bank (ECB) Governing Council member and Bank of France Governor François Villeroy de Galhau said the ECB is closely monitoring energy markets amid the Middle East war. Villeroy noted that the conflict’s duration will shape its impact on prices, but sees no reason at present for the ECB to raise interest rates.
ECB policymaker Martins Kazaks also said the central bank should “sit tight” and keep rates steady, given uncertainty surrounding the Iran conflict. However, surging oil and gas prices have revived inflation concerns, prompting some traders to price in the possibility of an ECB rate hike this year.
Meanwhile, the United Kingdom (UK) faces potential stagflation risks as higher energy costs could lift inflation while growth and employment remain subdued. As a major energy importer, the UK is particularly exposed to rising prices, which may keep inflation above the Bank of England’s (BoE) 2% target for an extended period. In January, UK headline inflation eased to 3% YoY.
