EUR/GBP SEES MORE LOSSES BELOW 0.8470 DESPITE SUPPLY WORRIES IN EUROPE

• EUR/GBP is eyeing more weakness if the cross drops below 0.8470.
• Investors have ignored energy issues in Europe as Russia has cut-off energy supply from its main pipeline.
• The downbeat UK Retail Sales have weakened the pound bulls.

The EUR/GBP pair is displaying back and forth moves in a narrow range of 0.8473-0.8480 in the early European session. On a broader note, the cross has remained in the grip of bears after the interest rate hike by the European Central Bank (ECB) for the first time in the past 11 years.

Last week, the ECB surprisingly announced a rate hike by 50 basis points (bps), higher than the consensus of 25 bps. In addition to the policy tightening, the ECB introduced the Transmission protection Instrument (TPI) to support southern European economies.

The announcement of higher interest rates may be fruitful for core European Union (EU) members such as Germany and France due to their stable financial position. However, southern European economies such as Italy, Greece, and Spain that are facing financial instability may face more headwinds due to higher borrowing costs. The ECB will purchase public securities of these countries and also private securities, if required, to support them against unwarranted deterioration in financing conditions.

Meanwhile, investors are ignoring the energy supply issues in Europe as Russia has cut off energy supplies from its main pipeline. No doubt, the European nations have shifted their energy demand to other suppliers but still cater majority of their energy demand from Russia.

On the UK front, lower Retail Sales data have weakened the pound bulls against the shared currency. The economic data landed at -5.8%, lower than the expectations of -5.3% and the prior release of -4.7% on an annual basis. Investors should be aware of the fact that higher price pressures are driving Retail Sales for now. And, a release of lower Retail Sales indicates that the overall demand is extremely weak.