Pound to Euro (GBP/EUR) Exchange Rate Sinks as UK Inflation Falls to Lowest in 3-Years in April

GBP/EUR Exchange Rate Falls as UK CPI and Retail Data Suffers in April

The Pound to Euro (GBP/EUR) exchange rate dipped by -0.3% this morning after UK inflation fell to -0.8% in April due to the coronavirus crisis. The pairing is currently trading around €1.11.

The Office for National Statistics (ONS) said that the fall in the cost of clothing and second-hand cars had weighed on average prices. Most shops were also closed throughout April leaving consumers to rely on online shopping for non-food goods.

Jeremy Thomson-Cook, the chief economist at Equals Group, commented:

‘With headline consumer inflation at 0.8% and producer price inflation – simply price rises at the beginning of a supply chain – falling 5.1% in April alone courtesy of the recent declines in oil prices, we are more likely to hear concerns about deflation from central bankers.’

Today also saw the UK’s retail sales plummet in April. Food sales tumbled by 2.4% while non-food sales plummeted by 71.4% due to the nationwide lockdown of non-essential retailers.

Paul Martin, the head of retail at KPMG UK, was more optimistic, however, commenting:

‘Shifting consumer habits combined with the global pandemic have created a perfect storm for the sector, but this is a resilient industry.’

Nevertheless, with the UK’s economic outlook continuing to darken and Chancellor Rishi Sunak warning of an unprecedented recession this year have dragged down Sterling today.

Looking ahead, Pound (GBP) investors will be awaiting today’s speech from Andrew Baily, the Governor of the Bank of England (BoE). However, if he is markedly downbeat about the British economy we could see Sterling fall further.

Euro (EUR) Rises Despite Weak Eurozone Inflation Data for April

The Euro (EUR) has performed well against the Pound (GBP) today despite France, Germany and Italy, having recently plunged into a recession.

Instead, investors are feeling more optimistic about the Eurozone as its largest economies continue open following their respective coronavirus peaks.

Meanwhile, life in Italy – one of the most heavily hit by the coronavirus – is showing signs of returning to normality. Monday saw the start of ‘phase two’ of the easing anti-Covid-19 measures as the country continues to get back onto its feet.

In Eurozone economic data, today saw the release of the final core Consumer Price Index (CPI) for April. However, this fell below forecasts from 0.8% to 0.7%, sparking some concern for one of the world’s largest trading blocks.

Today also saw the year-on-year Eurozone CPI figure fall from 0.4% to 0.3%.

As a result, Euro (EUR) investors are cautious as the Eurozone’s economy suffers from the fallout of the coronavirus pandemic.

GBP/EUR Forecast: Could Improving Eurozone PMIs Bolster the Single Currency?

Euro (EUR) investors will be looking ahead to tomorrow’s release of the Eurozone’s flash Markit PMI Composite for May. However, with the Eurozone’s economy potentially on the mend, any signs of improvement would prove Euro-positive.

Tomorrow will also see the release of the flash Germany’s Markit Manufacturing PMI for May. If the Eurozone’s largest economy shows improvement over the past month, we could see the single currency rise.

Sterling traders will be keeping a close eye on tomorrow’s publication of May’s UK Services PMI. However, with analysts expecting it to remain subdued, this will unlikely offer much uplift for the Pound.

The GBP/EUR exchange rate will continue to remain sensitive to the UK’s coronavirus developments this week. Any signs of coronavirus infections and deaths dropping would prove Pound-positive.

David Moore

Contact David Moore