World Cup Expected to Continue to Support UK Retail Sales as ECB Vows to End QE Stimulus – Pound Euro (GBP/EUR) Exchange Rate Rises
UPDATE 16:00 BST: Whilst many economists have pointed to the latest surge in UK retail sales as being seasonal and not liable to last, others have suggested that the World Cup 2018 should continue to keep retail sales on solid form.
Ian Gilmaritn, Head of Retail at Barclays echoed this sentiment, stating:
‘The truth is that despite continued rumours of the demise of our retail industry, many retailers are simply getting on with the job and continuing to attract customers through their doors. Of course, we’re not going to have a heatwave and a royal wedding to help drive sales every month, but the World Cup kick-off should help supermarkets, in particular, maintain this momentum over the next month or so’.
If this does prove to be the case then the Bank of England (BoE) could find even more reason to raise interest rates in August, and the Pound Euro (GBP/EUR) exchange rate even more reason to climb in the months to come.
Pound Euro (GBP/EUR) Exchange Rate Climbs as UK Retail Sales Smash Expectations and ECB’s Mario Draghi Indicates Winding down of Quantitative Easing (QE) By the End of 2018
The Pound Euro (GBP/EUR) exchange rate stormed ahead on Thursday, unperturbed by a surprising announcement from the European Central Bank (ECB) that it will be ceasing its quantitative easing measures, and bolstered by a sharp acceleration in UK retail sales last month.
According to the Office for National Statistics (ONS), retail sales in the UK increased by 4.4% in May, up from the previous period’s rise of 1.4% and the forecast of 2.5%.
This extremely positive result was largely thanks to a combination of the recent sunny weather and the royal wedding, bringing some much-needed respite to Britain’s struggling retail sector.
The climb was also rather broadly based, with the volume of goods sold in shops and online climbing by 1.3% – smashing expectations of a meagre 0.5% increase.
Not everyone was so enthusiastic about the news, however, with economist Samuel Tombs from Pantheon Macro, for example, asserting that the result was purely weather-based and not indicative of prolonged economic growth.
Mr Tombs stated:
‘The jump in retail sales in May has all the hallmarks of a weather-related blip, rather than a sustainable pick-up in spending. Overall growth was boosted by sharp increases in sales of clothing, sporting goods and garden items, up 1.7%, 3.3% and 6.2% month-to-month respectively’.
ECB Votes to End QE Measures, but Cautious Draghi Comments Leave Euro (EUR) Exchange Rates Tumbling
One might assume that the ECB finally announcing plans to end its quantitative easing scheme would be enough to send the Euro sky high.
Today, however, the opposite appeared to be the case.
Whilst the ECB has announced a three-month taper for its QE measures – finishing at the end of December this year – ECB President Mario Draghi also had a few gloomy things to say, including that a rate rise from the central bank is not likely until after summer 2019
Beyond this, the ECB cut its growth forecasts for this year from 2.4% down to 2.1%, whilst also citing greater economic uncertainty in light of escalating trade tensions on the global stage.
Combined, this news left Euro (EUR) exchange rates floundering, despite the positive step forward in ending QE.
Pound Euro (GBP/EUR) Exchange Rate Forecast: Trade Relations and Eurozone Inflation in the Spotlight
With the two key events of this week – the US Fed and ECB rate decisions – out of the way, investors will be now be turning their attentions to tomorrow’s Eurozone consumer price inflation result and the geopolitical sphere, with trade relations liable to move to the forefront.
US President Donald Trump has expressed plans for further aggressive trade sanctions against China, with analysts expecting a full list of his proposed tariffs by the end of this week.
Meanwhile, the EU’s tariffs against the US are set to initiate on 1 July, with investors slightly anxious that a lack of conciliation and rising tensions between the US and the EU could potentially lead to the US targeting the bloc’s automotive industry.
Moving ahead, these relations could take precedence, though the forecast rise in consumer price inflation for the Eurozone (1.2% to 1.9%) could put the Pound Euro (GBP/EUR) exchange rate under some pressure.