Pound Euro Exchange Rate Slips Lower in Spite of Jump in UK Retail Sales

Higher UK Retail Sales Fail to Shore up Pound Euro Exchange Rate

The Pound to Euro (GBP/EUR) exchange rate failed to capitalise on a stronger-than-expected uptick in March’s UK retail sales figure.

While sales delivered growth of 7.2% on the year this was not enough to offer Pound Sterling (GBP) any rallying point against its rivals.

Investors were instead concerned by the extent of the decline in retail sector activity seen over the course of the current national lockdown, with sales having fallen sharply over the first quarter.

Even though the sector looks set to bounce back rapidly, now that non-essential retail has reopened, GBP exchange rates were unable to benefit from any particular sense of optimism at this stage.

Solid German Manufacturing PMI Supports Euro Demand

Support for the Euro (EUR) picked up, meanwhile, in the wake of an improved German manufacturing PMI.

As forecasts had pointed towards the index shedding some ground on the month investors were encouraged to find that it had instead held relatively stable at 66.4.

All signs suggest that the Eurozone’s powerhouse economy has largely continued to shake off the impact of the ongoing Covid-19 crisis, giving the single currency cause for confidence.

However, some of this optimism was still tempered by the persistently underwhelming nature of the corresponding services PMI.

With the service sector struggling to recover its lost growth momentum since the start of the year the upside potential of EUR exchange rates diminished.

Euro Looks for Fresh Support on Rising German Business Sentiment

The mood towards the Euro could improve further on Monday, with the release of April’s set of German IFO business sentiment indexes.

Evidence of confidence within the German economy continuing to grow, even as social restrictions remain in place, may offer EUR exchange rates a solid boost.

On the other hand, the single currency could struggle to hold onto a positive footing if the business climate and expectations indexes fail to impress.

Any signs of weakening sentiment could give investors fresh incentive to sell out of the Euro, especially if the wider sense of market risk appetite shows improvement.

CBI Distributive Trades Index Rebound Forecast to Boost Pound

A rallying point could be in store for the Pound to Euro exchange rate, however, if the CBI distributive trades index strengthens as forecast on Tuesday.

With markets expecting to see the index leap from -45 to 15 worries over the health of the UK retail sector are likely to diminish once again.

As long as retail sales and service sector activity continue to show signs of a sharp increase at the start of the second quarter the downside potential of the Pound looks set to diminish.

Although Covid-19-based anxiety is likely to linger for some time to come the prospect of a more rapid UK economic recovery may still keep a floor under the GBP/EUR exchange rate.

Louisa Heath

Contact Louisa Heath