Pound Euro (GBP/EUR) Exchange Rate Remains Muted on Retail Sales and Covid Woes
(Updated 15:40, 20/8/21) The Pound Euro (GBP/EUR) exchange rate has remained subdued today, though it did bounce off this morning’s one-month low of €1.16522 and is currently trading around the €1.166 area.
The unexpected slump in UK retail sales continues to weigh on the Pound, though a drop in public borrowing may have limited Sterling’s losses.
Public sector borrowing was at £10.4bn in July, £1.4bn less than was forecast. However, this positive news was tempered not only by the retail sales slump but also by post-furlough fears and the likely cost of rising inflation on government borrowing in the next financial year.
So while the the borrowing figures could have cushioned Sterling’s downside somewhat, it may not have been by much.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Down on Bleak UK Data
The Pound Euro (GBP/EUR) exchange rate has hit a one-month low of €1.16522 as poor retail sales data and a continued rise in Covid cases dented Sterling.
Meanwhile the Euro (EUR) has gained support from Germany’s producer price index (PPI), which printed above expectations, and ongoing optimism in the EU’s progress against the virus.
Pound (GBP) Dented by Contraction in Retail Sales
The Pound (GBP) is trending downwards today after the latest UK retail sales figures unexpectedly contracted.
Sales were expected to grow in July by 0.4% but instead dropped by 2.5%. Food sales fell by 1.5% after rising by 3.9% in June, boosted by the Euro2020, and fuel sales fell by 2.9% as heavy rainfall saw less motorists on the road.
But the largest drop was in non-food items, with sales slumping by 4.4%. This was partly due to shortages but is also a sign that pent-up demand has subsided and consumer spending is cooling off.
Initial reactions from economists are largely pessimistic. Suren Thiru, head of economics at the British Chambers of Commerce, called it an ‘underwhelming’ beginning for the UK economy’s third quarter.
Meanwhile, Aled Patchett, head of retail and consumer goods at Lloyds Bank, said:
‘With the UK’s recovery lagging behind that of other major economies, the return of holidays, social events including weddings and the general easing of restrictions last month hasn’t turbocharged consumer spending in the way many hoped it might have.
‘Significant caveats remain as retailers’ attention turns to the upcoming ‘golden quarter’. For example, inflation is expected to continue affecting pricing, leaving brands caught between the rock and hard place of deciding between passing on price increases to consumers or sacrificing margin. Meanwhile global shipping issues are already contributing to stock shortages in a range of sub-categories – particularly food and drink.’
This downbeat take on the UK’s economic recovery comes as UK Covid cases rose again yesterday, with 36,572 new confirmed cases, up from 33,904 on Wednesday. Hospitalisations and deaths also rose, but at a much less steep pace.
After weighing on the Pound Euro pair yesterday, it’s likely that these figures are adding to Sterling’s headwinds.
Euro (EUR) Firms on German PPI and Upbeat Covid Outlook
The Euro, however, has found support this morning as the EU’s Covid outlook remains relatively upbeat and Germany’s latest PPI printed above expectations.
Producer prices in Germany increased by 1.9% in July, over double the expected 0.8%. As an indicator of inflation and a signal of economic growth, the better-than-expected PPI could be helping to support the Euro today.
In addition, the EU’s Covid situation is looking fairly upbeat, when compared to the rest of the world.
According to data presented by the Financial Times, cases in the EU are declining, whereas they are rising in the US, the UK and Japan. The EU also has the lowest number of confirmed infections among these four locations, with 13.2 average cases per 100,000 people; Japan has 14.5, the US has 41.6 and the UK has 45.2.
The EU’s vaccination programme has also accelerated rapidly in recent weeks, overtaking the US at the end of last month, which has raised hopes that the EU will have a robust post-pandemic recovery.
Pound Euro Exchange Rate Forecast: Monday’s PMIs in Focus
At the time of writing the Pound Euro exchange rate has bounced off its one-month lows and seems to be recouping some of its losses, but whether it can sustain this following the poor retail sales figures is yet to be seen.
Monday brings the flash PMIs for Germany, the Eurozone and the UK. While modest decreases in manufacturing and service-sector activity are forecast for Germany and the UK, economists expect the Eurozone’s services PMI to hold steady
Moreover, the UK’s PMIs are predicted to print lower than both Germany’s and the Eurozone’s, meaning Sterling could struggle on Monday morning.
However, the Confederation of British Industry’s industrial trends orders later that morning is expected to improve, while Eurozone consumer confidence is forecast to drop again in the afternoon. So perhaps the Pound Euro pair could make a comeback.