Pound Euro Exchange Rate Wobbles amid UK Income Crunch

Pound Euro Exchange Rate Wavers as Both Currencies Face Headwinds

(Updated 17:00, 10/5/22) The Pound Euro (GBP/EUR) exchange rate fluctuated today as both currencies came under selling pressure. GBP/EUR has wavered between €1.166 and €1.171 through today’s European session, moving sideways overall.

For the Pound (GBP), the key issue was the UK’s cost-of-living crisis. After some poor retail sales figures overnight, comments from Tesco Chairman John Allen added to investors’ concerns. In a BBC interview, Allen said that there was ‘real food poverty’ in the UK.

Meanwhile, the Euro (EUR) gained modest support from an unexpected rise in Germany’s ZEW economic sentiment index. However, the score remained very low, which capped EUR’s gains.

Then a downbeat analysis of the Russia-Ukraine war weighed on the single currency. The US Director of National Intelligence, Avril Haines, said that Vladimir Putin is likely ‘preparing for prolonged conflict in Ukraine’ and that his overall goals have not changed.

Haines also warned that Putin could turn to ‘more drastic means’ in order to make military progress.

As the Eurozone economy is highly vulnerable to economic collateral from the war, this gloomy assessment of the situation weighed on EUR.

Original article continues below:

Pound Euro Exchange Rate Falls following Worrying Retail Sales 

The Pound Euro (GBP/EUR) exchange rate slipped this morning as the UK’s cost-of-living crisis once again worries investors. 

Meanwhile, the Euro (EUR) has found some success, but headwinds remain and cap the single currency’s upside. 

Pound (GBP) Slips on Cost-of-Living Concerns 

The Pound (GBP) is on the defensive this morning after some troubling UK retail sales data overnight. 

The British Retail Consortium’s (BRC) latest report showed that domestic UK sales declined by 1.7% year on year in April, much worse than the forecast fall of 0.1%. 

Analysts believe that the crunch on real incomes is behind the drop in sales, and that things could get worse. 

Helen Dickinson OBE, CEO of the BRC, commented on the results: 

‘The rising cost of living has crushed consumer confidence and put the brakes on consumer spending. Sales growth has been slowing since January, though the real extent of this decline has been masked by rising inflation.’ 

Paul Martin, UK Head of Retail at KPMG, added: 

‘The cost-of-living crisis came home to roost for retailers in April, with sales growth going into decline for the first time in 15 months… 

‘With interest rates and inflation rising and the Bank of England warning of a possible recession, the squeeze on disposable household income is starting to have an impact on the high street.’ 

Additionally, Tesco Chairman John Allen has been on the airwaves this morning discussing the cost-of-living crisis. Allen has warned that the UK is seeing ‘real food poverty’ and that the government needs to do more to support struggling households. 

As a result, GBP/EUR has slipped. 

Euro (EUR) Firms as German Data Beats Forecasts 

Meanwhile, the Euro managed to firm against the weakening Pound this morning. 

However, the single currency has found its gains limited so far as concerns about the Ukraine crisis and its impact on the Eurozone economy remain. 

Germany’s latest ZEW economic sentiment index is also providing the Euro with modest support. Forecasters expected economic sentiment to slip this month but instead it increased, rising off a two-year low. 

The latest reading still indicates a pessimistic outlook in Europe’s largest economy, however, so again EUR’s gains could be capped. 

Pound Euro Exchange Rate Forecast: Will Brexit be Back in Focus? 

Looking ahead, Brexit could become a big issue for the Pound Euro pair in the coming days and weeks. Reports suggest that Foreign Secretary Liz Truss may be preparing to scrap parts of the Northern Ireland protocol as soon as next week. 

The UK-EU disagreement over trade in Northern Ireland hammered the Pound last year, as investors feared a breakdown in negotiations could result in a trade war. If the issue enters the spotlight again, GBP could suffer. 

As for the Euro, focus today may be on developments from Ukraine. 

Tomorrow morning, European Central Bank (ECB) President Christine Lagarde is due to speak. If she offers any clues as to the ECB’s thinking on monetary policy, this could impact EUR. 

Samuel Birnie

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