Pound Euro (GBP/EUR) Exchange Rate Regains Ground despite Disappointing Data All Round
(Updated 16:00, 25/3/22) The Pound Euro (GBP/EUR) exchange rate wavered higher this afternoon, reversing its losses after UK retail sales unexpectedly shrank.
The upside in GBP/EUR came as poor German data weighed on the Euro (EUR). Business sentiment in Europe’s largest economy slumped to a 14-month low.
A downbeat mood around the Russia-Ukraine war also dented the single currency. Russia’s invasion continues, as last week’s hopes of diplomatic progress seem like a distant memory. Causalities are rising and rhetoric from Moscow and the West seems to be hardening.
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Pound Euro (GBP/EUR) Exchange Rate Falls following UK Sales Data
The Pound Euro (GBP/EUR) exchange rate slipped this morning after British retail sales unexpectedly contracted in February.
However, a slump in the Ifo German business climate indictor is limiting GBP/EUR’s losses.
Pound (GBP) Slips as Retail Sales Shrink
The Pound (GBP) fell as today’s European session began following some worrying UK retail sales data.
Sales growth in February unexpectedly contracted by 0.3%, rather than rising by 0.6% as economists had expected. Once you strip out fuel sales, retail sales volumes fell by 0.7%. However, the Office for National Statistics (ONS) says that February’s sales were still 3.7% above pre-pandemic levels (February 2020).
Martin Beck, Chief Economic Advisor to the EY ITEM Club, warns that ‘things will soon get tougher’ for retailers. He believes spending patterns will continue normalise, with people spending more on services rather than goods. Beck also adds:
‘This headwind will be compounded by the intensifying cost of living squeeze. The EY ITEM Club now expects inflation to average well over 6% this year and, with this week’s Spring Statement offering limited support, there is still likely to be the biggest squeeze on household finances for more than a decade. Some households may be able to dip into savings accumulated during the pandemic, but many won’t have that luxury. So, retail demand is likely to come under increasing pressure as we move through 2022.’
Worries about the cost-of-living squeeze have pushed GBP/EUR lower over the last two days. Today’s sales data is extending the downside.
Euro (EUR) Capped as German Business Sentiment Slumps
Meanwhile, the Euro (EUR) is also under pressure this morning after Germany’s Ifo business climate indicator printed at 90.8, well below forecasts of 94.2. The score means that business sentiment in Europe’s largest economy has slumped to a 14-month low.
The downbeat mood comes as supply-chain issues begin to worsen again, after improving earlier in the year. Rising costs also worried businesses, with German inflation holding near a 30-year high.
The war in Ukraine is another big factor weighing on business morale in Germany. Of all the Eurozone countries, Germany is one of the most exposed to the fallout of Russia’s invasion due to the country’s dependence on Russian energy.
Carsten Brzeski, Global Head of Macro at ING Research, explains:
‘The risk is high that the economic implications of the war are much more of a structural game-changer for the European and particularly the German economy than the pandemic has ever been.
‘With high energy and commodity prices for a protracted period, possibly even energy supply interruptions, and an acceleration of deglobalisation, possibly Cold War 2.0, an export-oriented economy highly dependent on energy imports will suffer.’
This troubling data could be severely limiting EUR’s gains against GBP today.
Pound Euro Exchange Rate Forecast: GBP/EUR Could Waver
With both currencies facing headwinds from poor data, GBP/EUR could waver today.
The deciding factors in the direction of the currency pair are likely to be the UK’s cost-of-living crisis and news from the Russia-Ukraine war.
Following the UK CPI and spring statement earlier in the week, the Pound is currently under the most pressure. Meanwhile, a joint announcement from the US and the EU on reducing Europe’s reliance on Russian energy could support the single currency.