Doubts Over Eurozone Outlook Boost GBP/EUR Exchange Rate
UPDATE: A lingering sense of scepticism over the health of the Eurozone economic outlook encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to climb higher over the course of the day.
With markets still wary of the prospect of the currency union losing further momentum before the end of the year, raising the risk of European Central Bank (ECB) dovishness, support for the Euro proved largely limited.
Pound Sterling Euro (GBP/EUR) Exchange Rate Recovers Ground as UK Reported Retail Sales Strengthen
A better-than-expected CBI reported retail sales index helped the Pound Sterling to Euro (GBP/EUR) exchange rate push higher at the start of the week.
As the index clocked in at -3, rather than the -10 forecast, this suggests that the recent decline in UK retail sales is bottoming out ahead of the Christmas period.
Stronger levels of retail sales could limit the impact of a wider economic slowdown, reducing the risk of a fourth quarter growth contraction as consumer spending increases.
With market jitters over the upcoming election temporarily easing Pound Sterling (GBP) made solid gains across the board this morning, even though businesses still showed signs of caution over the retail outlook.
Improving German Business Sentiment Offers Limited Boost to EUR Exchange Rates
The mood towards the Euro (EUR), meanwhile, remained muted in spite of a solid improvement seen in the latest German IFO business sentiment survey.
Although both the current conditions and business expectations indexes showed an uptick on the month this failed to boost EUR exchange rates.
While signs point towards the German economy’s recent bout of weakness drawing to a close a sense of anxiety over the growth outlook remains.
Unless markets see further evidence of the Eurozone’s powerhouse economy recovering its lost momentum before the end of the year the single currency looks vulnerable to further selling pressure.
German Inflation Uptick Set to Shore up Euro
Demand for the Euro could pick up further over the course of the week, however, as forecasts point towards an uptick in the headline German consumer price index.
If the inflation rate strengthens from 1.1% to 1.3% in November this would give the European Central Bank (ECB) greater cause for confidence.
Evidence that inflationary pressure in the Eurozone’s powerhouse economy is picking back up would offer ECB policymakers incentive to leave monetary policy on hold for longer.
However, the positive impact of a stronger year-on-year inflation reading could be undermined by a weak monthly consumer price index figure.
As markets expect to see the monthly inflation rate contract -0.6% this may drag EUR exchange rates sharply lower across the board.
GBP Exchange Rates Look for Rally on Rising Mortgage Approvals
An uptick in October’s UK mortgage approvals figure could offer the GBP/EUR exchange rate a fresh rallying point on Tuesday, meanwhile.
Signs that UK consumers are continuing to borrow even in the face of the latest bout of political uncertainty may encourage the Pound to trend higher across the board.
While confidence in the economic outlook for the fourth quarter remains muted any improvement in UK lending data could still give GBP exchange rates a boost in the short term.
Any evidence of weakening domestic confidence, though, would leave the GBP/EUR exchange rate exposed to renewed selling pressure tomorrow.