Pound Euro Exchange Rate Wobbles on UK Sales and German Woes
The Pound Euro (GBP/EUR) exchange rate is wavering this morning as both currencies contend with poor economic data.
At the time of writing, GBP/EUR has wobbled lower overall. The pair is currently trading at €1.1642.
Pound (GBP) Dented by Retail Sales
The Pound (GBP) faces challenges this morning after the UK’s latest retail sales showed a 0.5% contraction in May. This was a little better than the 0.7% contraction economists had expected, but it is still a worrying result.
In addition, the Office for National Statistics (ONS) revised April’s sales growth sharply lower, from 1.4% to 0.4%.
The 0.5% decline came as UK consumers cut back on spending as surging inflation pushes up the cost of living.
Nicholas Farr, Assistant Economist at Capital Economics, commented:
‘The 0.5% m/m drop in retail sales volumes in May (consensus -0.7% m/m) was the third decline in four months, follows a downwardly revised rise in April and suggests that the fall in real incomes from higher inflation is starting to hit consumer spending harder.
‘More pain probably lies in store for the retail sector over the coming months, but that won’t stop the Bank of England from raising interest rates further.’
With UK economic data continuing to indicate more trouble ahead, Sterling is under pressure this morning.
Euro (EUR) Pressured amid Gloomy Outlook
However, the Euro (EUR) also faces headwinds today.
Business morale in Germany – Europe’s largest economy – fell more than expected this month. The Ifo German business climate indicator dropped from 93 to 92.3.
More bad econ news out of Eurozone. Ifo German business confidence drops more than expected in June to 92.3 vs 92.8 exp from 93 in May as Ifo expectations component plunges to 85.8 from 86.9 vs an increase to 87.4 exp. Ifo current assessment component on other hand, surprises pos pic.twitter.com/kb9uw0oItf
— Holger Zschaepitz (@Schuldensuehner) June 24, 2022
Firms are worried about high inflation driving up costs and the possibility of gas shortages in the second half of the year.
Yesterday, Germany raised its gas risk level to the second of three emergency phases, moving the country one step closer to gas rationing, as Russia cuts supplies.
With the Eurozone facing economic trouble of its own, the single currency may struggle to hold gains against the Pound.
Pound Euro Exchange Rate Forecast: GBP/EUR to Struggle for Direction?
As markets digest the latest economic data, we could see the Pound Euro pair continue to fluctuate in a narrow range.
Other factors may push GBP/EUR in a more definite direction. For the Euro, any more news from the Russia-Ukraine crisis, such as further gas cuts or an escalation of tensions, could create downside pressure.
For the Pound, domestic political news could have an impact. The Tories lost both seats in yesterday’s byelections, resulting in the unexpected resignation of Oliver Dowden as Co-Chair of the Conservative Party. The uncertainty over Boris Johnson’s future has hurt GBP in recent months, so today’s drama could affect Sterling.