Solid Gains Recorded for GBP/EUR Exchange Rate even as Data Reminds of Uncertainty Surrounding UK Economic Forecasts
A series of uninspiring UK data releases has so far failed to prevent the GBP/EUR exchange rate from recording solid gains this morning, with focus on a busy US data calendar keeping markets from buying into the Euro.
The gloomy outlook for UK consumer spending continues to dog the economic outlook, with the latest household spending index from Visa showing an acceleration of the decline in spending to its fastest pace since October 2017.
Year-on-year spending fell -2.1% during March, compared to the -1% drop seen in February, while the annualised quarterly decline of -1.4% represents the worst performance since the final three months of 2012.
The impact of falling consumer spending has been hammered home by data from Colliers International, a commercial real estate agency, which shows that the last 12 months have seen 15 major retailers enter a company voluntary arrangement (CVA) or administration, threatening or terminating around 12,000 jobs.
Head of Business Rates at Colliers John Webb stated;
‘These figures are as bad, if not worse than the crash of 2008⁄9 when 16 companies went into administration - 12 in 2008 and 4 in 2009 - and we are only in April now.’
Meanwhile, a focus on this afternoon’s US advance retail sales data and Federal Reserve speeches is keeping appetite for the Euro muted, allowing the GBP/EUR exchange rate to advance.
GBP/EUR Exchange Rate Ends Week at 11-Month High after European Central Bank (ECB) Reveals Cautious Approach to Ending Quantitative Easing
Monetary policy for both the UK and the Eurozone was the main focus of last week, with the GBP/EUR exchange rate failing to benefit from some positive signs regarding the potential for a May interest rate hike.
However, focus on Thursday’s scheduled release of accounts from the most recent European Central Bank (ECB) meeting kept the Euro from benefitting from the lacklustre Pound demand, although weak domestic data was also a factor restraining the common currency.
Things started positively for the Pound, with a sharper-than-expected rise in house prices both on the month and over the first quarter year-on-year raising hopes the UK economy could handle higher borrowing costs.
However, Tuesday’s optimistic comments from Bank of England (BoE) policymaker Ian McCafferty, who said that the Monetary Policy Committee (MPC) shouldn’t ‘dally’ when raising rates, failed to provide much support.
The Euro was unable to capitalise on this thanks to poor domestic data and an uneventful speech from ECB President Mario Draghi.
Thursday’s meeting minutes were a different matter, however, with the GBP/EUR exchange rate shooting to an 11-month high on the back of the accounts, in which the Governing Council stressed that it still could expand or extend quantitative easing if economic conditions warranted such a move.
GBP/EUR Exchange Rate Forecast to Climb Further if UK Wage, Inflation and Retail Data Points to Consumer Spending Rebound
It is a key week for the UK economic outlook, with data such as tomorrow’s average weekly earnings and unemployment rate potentially improving the outlook for consumer spending; forecasts are for pay growth including bonuses to accelerate from 2.8% to 3%.
Wednesday’s consumer price index data could support the positivity generated by any upticks in the rate of pay growth, given that expectations are for core price growth to rise from 2.4% to 2.5% after several months of slowing.
Thursday’s retail sales figures for March will see the consumer spending outlook developing further; forecasts for on-the-month contractions could ease confidence of a May interest rate hike.
Meanwhile, the Euro could suffer from a relative lack of domestic data: after tomorrow’s top-tier ZEW economic survey results, the only ecostats of note this week are Wednesday’s finalised inflation figures, Thursday’s current account balance for February and Friday’s consumer confidence index.