Pound Sterling Euro (GBP/EUR) Exchange Rate Softens as UK Consumer Confidence Sticks at 6 Year Low

Negative UK Consumer Sentiment Keeps Pound Sterling Euro (GBP/EUR) Exchange Rate on Back Foot

With UK consumer confidence still trapped in negative territory the Pound Sterling to Euro (GBP/EUR) exchange rate remained under pressure this morning.

Although forecasts had pointed towards a steady reading of -14 from the GfK consumer confidence index the mood towards Pound Sterling (GBP) still soured on the back of the data.

With confidence stuck at its joint-lowest reading since 2013, extending an almost four year run of negative sentiment, investors saw little incentive to support GBP exchange rates.

Although there is hope that the results of the upcoming general election could give consumers greater cause for confidence in the months ahead the risk of a hung parliament remains.

As Joe Staton, client strategy officer at GfK, noted:

‘A hung parliament could be very damaging for consumer confidence and would surely deepen the obvious malaise that we see month after month.’

Stronger-Than-Forecast Eurozone Inflation Offers EUR Exchange Rates Support

The downside potential of the Euro (EUR) was limited, meanwhile, thanks to an unexpectedly strong uptick in November’s Eurozone consumer price index.

As the headline inflation rate picked up from 0.7% to 1.0% on the year this helped to limit selling pressure on the single currency ahead of the weekend.

Even so, the improvement failed to generate any significant rally for EUR exchange rates as inflation remains some way short of the European Central Bank’s (ECB) 2% target.

A surprise contraction in October’s monthly German retail sales also limited the potential for Euro gains, with markets concerned by the abrupt -1.9% plunge in consumer spending within the Eurozone’s powerhouse economy.

Lacklustre Eurozone PMIs Set to Weigh on Euro Demand

With no real change anticipated from the finalised raft of Eurozone manufacturing and services PMIs the single currency may struggle to find support on Monday.

Confirmation that the manufacturing sector remained in decline as service sector growth softened would leave EUR exchange rates vulnerable to additional selling pressure.

As long as the Eurozone economy appears at risk of shedding further momentum in the fourth quarter the appeal of the Euro is likely to prove limited.

However, any upward revision to November’s finalised PMIs may encourage the single currency to recover some of its lost ground in the short term.

GBP Exchange Rates Brace for Fresh Downside on Negative UK PMIs

Further volatility could be in store for the Pound next week if the latest set of UK PMIs shows any revisions, meanwhile.

After the disappointing nature of the initial readings investors remain wary of confirmation that economic activity across the UK deteriorated in November.

On the other hand, any positive revision to the data may encourage investors to reassess the risk of a potential fourth quarter slowdown.

Unless the service sector can deliver signs of greater resilience, though, the GBP/EUR exchange rate may remain on the back foot.

Louisa Heath

Contact Louisa Heath