Pound Euro (GBP/EUR) Exchange Rate Dented by Downbeat Report
(Updated 16:30, 09/11/21) The Pound Euro (GBP/EUR) exchange rate has fallen this afternoon following the latest economic outlook report from the National Institute of Economic and Social Research (NIESR).
The report, titled ‘Recovery: Stalling not Soaring’, reads:
‘The next few months are likely to bring stuttering growth, rising inflation and widening income inequalities to the UK economy. Household incomes will be painfully squeezed by a combination of earnings growth lagging inflation, rising interest rates and tighter fiscal policy.’
The think-tank also warns that economic growth in the UK will slow in the coming years, while regional disparities will widen.
The Pound (GBP) also seems to have been pressured by a souring of market sentiment, as Sterling is seen as a riskier currency than the Euro (EUR). Warnings from the Federal Reserve about the rising prices of riskier assets, contagion risks from China’s real estate sector, and the threat of Covid variants to the European economy have triggered a dour mood among investors this afternoon.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Strengthens on UK Sales
The Pound Euro (GBP/EUR) exchange rate has trended upwards overall today, as the Pound (GBP) was buoyed by some promising UK retail sales and consumer spending reports.
However, the single currency has managed to regain ground following an unexpected rise in German business confidence, although these gains may be limited.
Pound (GBP) Gains on Recovery in Retail Sales
The Pound rose sharply against the Euro (EUR) earlier this morning, as data from the British Retail Consortium (BRC) revealed that October sales were up by 1.3% compared to last year’s data and up 6.3% compared to October 2019.
With more price rises expected and potential shortages looming, consumers decided to start their Christmas shopping early, driving a recovery in retail sales.
This rosier picture of consumer spending was supported by figures from Barclaycard, which showed that credit-card spending was up by 14.2% in October from the same month last year. The growth in spending was particularly strong in travel, digital entertainment and subscription services.
While this initially boosted the Pound Euro exchange rate, Sterling has since lost some ground. This seems due to both some positive Eurozone data and ongoing concerns about the Northern Ireland protocol deadlock.
There are reports that the UK government is preparing to trigger Article 16, effectively suspending parts of the protocol. Many commentators are worried that this could lead to the EU collapsing its trade deal with the UK.
These fears seem to have detracted from GBP/EUR’s gains today, but so far the pair is still up from today’s opening rate.
Euro (EUR) Regains Ground on German Economic Sentiment
The Euro, meanwhile, is down against the Pound so far today, although it is managing to regain some ground.
The initial downside came after Germany’s balance of trade figures printed below forecasts. Although Germany’s trade surplus widened by €4.5bn month-on-month to reach €16.2bn in September, it was still €1.5bn below the forecast figure. In addition, the surplus was €3.8bn lower than the same month last year.
On a seasonally adjusted basis, German exports were down 0.7%. This was the second consecutive decrease, with supply chain disruption continuing to harm the German economy.
EUR was able to claw back some of these losses following the ZEW economic sentiment report for Germany. The index jumped from 22.3 to 31.7 – the first rise in six months and well above estimates of 20.
The rise in morale comes as market experts are more hopeful for next year, projecting higher growth and easing inflation in early 2022.
However, the single currency’s gains may be capped as concerns over Germany’s present situation worsened. The index’s current conditions measure fell from 21.6 to just 12.5, below expectations of 18, as analysts expect inflation and materials shortages to continue hammering the country’s economy in the third quarter of this year.
Pound Euro Exchange Rate Forecast: Can GBP/EUR Hold its Gains?
At the time of writing it’s unclear whether the latest Eurozone data will be enough to drive a recovery in the Euro, though it may be that the caveat of worsening current conditions keeps a lid on the single currency’s rebound.
GBP investors will be keeping an eye on Brexit headlines, with any negative news likely weighing on the Pound. They will also be looking ahead to a speech from Bank of England (BoE) Governor Andrew Bailey this afternoon. After the bank shocked markets by leaving interest rates unchanged last week, attention will now turn to the BoE’s December monetary policy meeting.