Pound Euro Exchange Rate Firms, Markets Welcome Surprise Expansion in UK Retail Sales

GBP/EUR Exchange Rate Buoyed by UK Retail Sales

The Pound to Euro (GBP/EUR) exchange rate is trending higher this morning as markets react to some upbeat retail sales figures from the UK.

At the time of writing the GBP/EUR exchange rate is trading at around €1.0852, up almost 0.3% from today’s opening levels.

Pound (GBP) Accelerates on Upbeat Retail Sales Data

A surprise expansion in domestic retail sales has lent some support to the Pound (GBP) this morning, propelling it to a fresh weekly high against the Euro (EUR).

According to data published by the Office for National Statistics (ONS), UK retail sales rose by 0.2% in July, slowing from 0.9% in June but beating forecasts sales growth would contract by 0.2%.

The ONS attributed the rise to a strong expansion in non-store retailing, with online sales soaring by 6.9% month-on-month thanks to promotions like Amazon’s Prime Day.

Also contributing to the rise were UK department stores, which saw sales growth by 1.6% last month. Their first expansion in 2019.

The rise in sales came as a welcome surprise to GBP investors as it bolsters hopes for an expansion in economic growth in the third quarter, allowing the UK to avoid slipping into a technical recession.

Gabriella Dickens, Assistant Economist at Capital Economics said:

‘Of course, the retail sector only makes up about 30% of total household spending. But spending growth off the high street appears to have remained fairly steady.

‘So July’s figures leave us more confident that the economy avoided another contraction in the third quarter.’

However it remains to be seen if consumer spending remains as resilient in the months to come as the threat of a no-deal Brexit could lead households to tighten their belts.

Euro (EUR) Remains Fragile as German Recession Fears Stoke ECB Rate Cut Expectations

At the same time, the Euro (EUR) is struggling to find momentum this morning as EUR investors remain unnerved by the possibility of Germany falling into a recession this year.

Wednesday saw the release of Germany’s latest GDP figures which confirmed that growth in the country had contracted in the second quarter.

Combined with recent data suggesting a weak start to the third quarter this fueled fears that Europe’s largest economy could be headed towards a recession this year.

This in turn has stoked expectations for a bout of monetary easing from the European Central Bank (ECB) next month, with Euro sentiment dented by speculation of a potential rate cut and the re-start of the bank’s quantitative easing programme.

GBP/EUR Exchange Rate Forecast: Brexit Uncertainty to Limit Upside in Sterling

Looking ahead, the Pound to Euro (GBP/EUR) exchange rate may run out of steam at the end of the week as a lull in UK economic data turns the focus back towards UK politics.

With the UK currently on track for a no-deal Brexit, and the opposition still slip on the best method to prevent this, Sterling’s upside potential looks limited at best.

The Euro is likely to remain equally muted tomorrow, as analysts anticipate the Eurozone’s latest trade balance will show the bloc’s trade surplus narrowed in June.

Matthew Andrews

Contact Matthew Andrews