Drop in UK Retail Sales Weighs on Pound Euro (GBP/EUR) Exchange Rate
A smaller-than-expected drop in March’s British Retail Consortium (BRC) like-for-like retail sales index helped to keep the Pound Sterling to Euro (GBP/EUR) exchange rate on a steady footing.
Even so, the -3.5% decline still signalled a significant slowdown for the UK retail sector as the impact of the Covid-19 lockdown began to bite.
With the lockdown looking set for an extension of at least three weeks the mood towards Pound Sterling (GBP) still soured this morning as investors brace for a deeper slowdown.
Reports that the government has yet to develop an exit strategy for the end of the lockdown also spooked markets, suggesting that further economic disruption is in store for some months to come.
Euro Gains Limited Thanks to Underwhelming Eurozone Industrial Production
Even so, demand for the Euro (EUR) also proved muted in the wake of February’s Eurozone industrial production data.
Confirmation that industrial output contracted sharply on the year even before Eurozone nations began shutting down in response to Covid-19 left investors with little reason to favour the single currency.
While production only saw a modest -0.1% contraction on the month this was not enough to keep EUR exchange rates from faltering, with the Eurozone manufacturing sector looking set for a further loss of momentum.
As German wholesale prices saw another contraction in March this added to the bearish mood, limiting the Euro’s ability to push higher against its weakened rivals.
Softer Eurozone Construction Sector Set to Boost GBP/EUR Exchange Rate
Friday’s Eurozone construction output data could offer the GBP/EUR exchange rate a rallying point, as long as the sector shows signs of slowing.
A dip in February’s construction sector activity may cast a fresh shadow over the outlook of the wider Eurozone economy, dampening the appeal of the single currency further.
However, the mood towards the Euro could improve on Monday if the latest Eurozone trade balance shows a widened surplus.
Although the February trade data will not reflect the fallout of the Covid-19 crisis a stronger showing here may still encourage demand for the single currency, giving EUR exchange rates a leg up.
Sharp Rise in UK Claimant Count to Fuel Fresh Pound Sterling Selling
Fresh volatility is likely in store for the Pound on the back of next week’s UK claimant count change reading.
Markets are wary of the potential for a sharp spike in March’s claimant count as the lockdown drove a high number of workers out of the labour market.
As long as claimants rise sharply on the month worries over the resilience of the UK economy are likely to pick up, with March looking set to deliver a higher unemployment rate.
Although forecasts point towards a stable reading from February’s unemployment rate, also released on Tuesday, this may not be enough to shore up the GBP/EUR exchange rate.