EUR/GBP steadies as markets weigh Eurozone growth and UK Retail Sales

• EUR/GBP holds steady above 0.8670, as markets weigh subdued Eurozone Q2 growth and the UK's mixed Retail Sales data.
• Eurozone Q2 GDP expanded 0.1% QoQ and 1.5% YoY, confirming sluggish growth, while employment rose 0.1% QoQ and 0.6% YoY.
• UK Retail Sales rose 0.6% in July, but annual growth slowed to 1.1% with prior figures revised lower.

The Euro (EUR) edges higher against the British Pound (GBP) on Friday, with EUR/GBP trading around 0.8680 during the European session. The cross is stabilizing after two straight days of losses as markets digest a mixed set of UK Retail Sales and lingering fiscal concerns, alongside subdued Eurozone growth figures.

Eurostat's final Q2 release confirmed that the Eurozone economy is expanding at only a modest pace. Gross Domestic Product (GDP) rose 0.1% QoQ, exactly as expected and unchanged from the earlier estimate, while annual growth picked up slightly to 1.5% from 1.4%. Employment rose by 0.1% in the second quarter, in line with estimates, while annual job growth slowed to 0.6% from 0.7%. The slowdown follows a Q1 boost from tariff front-loading, while persistent uncertainty around US trade measures has encouraged businesses and households to adopt a more cautious stance.

In the UK, July Retail Sales delivered a mixed performance. Headline sales rose 0.6% MoM, beating the 0.2% consensus, though the previous figure was revised sharply lower to 0.3% from 0.9%. On an annual basis, sales increased 1.1%, undershooting expectations of 1.3% and down from a revised 0.9% previously. Excluding fuel, sales rose 0.5% MoM, just above the 0.4% forecast but below the 0.6% prior, while annual growth held at 1.3%, slightly softer than the 1.8% earlier estimate. The details highlight resilient short-term spending but also reveal downward revisions that temper optimism, keeping the outlook for household demand subdued.

Sterling has managed to stabilise but remains under pressure after a volatile week in UK bond markets. Long-dated gilt yields briefly surged to their highest levels since the late 1990s, reviving worries about debt sustainability before easing back on Friday. Analysts at UBS maintain a cautious view on Sterling, projecting the cross to climb toward 0.8800 by year-end. In the near term, the bank highlights 0.8650 as a key support level; a sustained hold above this area keeps the bias tilted higher.

On the upside, resistance is seen around 0.8700, a break of which would reinforce momentum toward the 0.8750-0.8800 zone. Failure to defend 0.8650, however, could expose the cross to a corrective pullback, with secondary support near 0.8620. Overall, UBS's technical stance underscores that risks remain skewed toward euro strength as long as fiscal uncertainty continues to weigh on Sterling.