Record Low German Business Sentiment Fails to Boost Pound Euro (GBP/EUR) Exchange Rate
A sharper-than-expected plunge in the German IFO business sentiment index was not enough to prevent the Pound Sterling to Euro (GBP/EUR) exchange rate faltering today.
Although the index dropped from 85.9 to 74.3 in April, hitting a record low, this failed to drag the Euro (EUR) lower against its rivals.
Markets remain hopeful that the Eurozone economy will be able to recover some of its lost momentum in the near future, given that Germany has started to relax some of its lockdown measures.
While business optimism painted a discouraging picture of the economic outlook, adding weight to the odds of a deeper slowdown, the single currency benefitted from a general easing in market risk appetite.
Pound Sterling Under Pressure Thanks to Plunge in UK Retail Sales
Support for Pound Sterling (GBP), meanwhile, weakened in the wake of March’s discouraging UK retail sales data.
As the Covid-19 lockdown came into place this resulted in a sharp slowdown in retail sales, resulting in a -5.1% monthly decline in spite of a spike in supermarket spending.
With the UK economy looking set to remain in a state of shutdown for some time to come, with the government still offering no real time-frame for a potential return to normality, support for GBP exchange rates weakened.
Investors expect to see consumer spending weaken further in the second quarter, with April’s figure looking set to show an even sharper deterioration as the impact of the initial stockpiling rush fades.
Further Signs of UK Economic Slowdown to Weigh on GBP/EUR Exchange Rate
Further pressure could be in store for the Pound on Tuesday if April’s CBI distributive trades index slumps as far as forecast.
The headline index is expected to show a sharp decline on the month, dropping from -3 to -40 in response to the Covid-19 disruption.
As long as the UK economy continues to show signs of stalling in the face of the pandemic the GBP/EUR exchange rate is likely to remain biased to the downside.
Until investors see reason to expect a winding down of the current lockdown a sense of bearishness looks set to keep the Pound under pressure for the foreseeable future.
Lacklustre Eurozone Business Sentiment Looks Set to Drag on Euro
On the other hand, the Euro may stumble once again next week unless the latest Eurozone business confidence index impresses.
Another marked deterioration in economic sentiment would cast a fresh shadow over the outlook of the currency union, adding to bets that a deep recession remains on the cards.
Any decline in sentiment could easily push the single currency lower across the board, given existing signs of the Eurozone economy struggling in response to global slowdown.
Germany’s April consumer price index data may also provoke volatility for the Euro, to the potential benefit of the GBP/EUR exchange rate.