Pound Euro Exchange Rate Climbs as UK Retail Sales Slide
The Pound Euro (GBP/EUR) exchange rate is rising this morning as UK retail data reveals a smaller-than-expected slide in June’s sales. Meanwhile, the Euro (EUR) has returned to yesterday’s opening levels after yesterday’s ECB-inspired peak.
At the time of writing, GBP/EUR is trading at €1.1772, up 0.3% from today’s opening levels.
Pound (GBP) Falls as Retail Sales Decline
Despite climbing against EUR, the Pound (GBP) is tumbling against the majority of its peers this morning following the release of June’s retail data.
Sales fell by 0.1% following an upwardly revised 0.8% drop in May, beating expectations of a 0.3% fall: nevertheless, Sterling investors responded bearishly to the data.
Sales fell across clothing (-4.7%), auto fuel (-4.3%) and household goods (-3.7%). Record-high petrol and diesel prices are blamed for capping people’s fuel spending.
Food sales increased on account of the Queen’s jubilee celebrations but failed to reverse a broad trend of decline as high inflation limits purchasing power.
Lynda Petherick, the head of retail for Accenture in the UK and Ireland, commented:
‘The continuing slide in consumer spending is another blow to a retail sector already grappling with increasing costs and decreasing customer spending.
Many businesses will have been hoping that the Queen’s platinum jubilee and the long weekend would have given them cause for celebration, but it clearly wasn’t enough to offset battered consumer confidence.’
Capping GBP gains, however, is better-than-expected PMI data. UK manufacturing activity fell by less than expected in July, alongside service-sector growth. This puts Britain at an advantage over Europe, as productivity weakened across the board in the bloc.
Euro (EUR) Weakens as PMI Data Misses Forecasts
Support for the Euro is waning this morning as both German and Euro area PMIs print weaker than expected.
Manufacturing activity across Europe fell by 2.5 points and services by 2.4 rather than the 1 point forecast. The former marks the first contraction in factory activity since June 2020, as manufacturing output fell for a second consecutive month.
Meanwhile, services sector growth slowed to its weakest pace since April 2021, driven by weakening activity in Germany, France and the rest of the Euro area.
Responding to Germany’s similarly dismal data, Paul Smith, economics director at S&P Global Market Intelligence said:
‘Having enjoyed a growth boost from the previous easing of virus-related restrictions, a collision of various headwinds in July served to push the German economy into contraction territory for the first time in 2022 so far.’
The data for the bloc’s largest economy is perhaps even more striking than the Europe-wide release, as the consensus had been that both Germany’s manufacturing and service sectors would be expanding.
The PMI surveys are closely followed by economists because they can foretell the path of the economy as a whole: in this case, today’s releases have done their part to reverse recent gains on the European Central Bank (ECB)’s hawkish monetary policy.
Pound Euro Exchange Rate Forecast: Risk Flows to Decide Movement?
Looking ahead, a lack of further data through today’s session leaves the Pound Euro exchange rate to trade on external factors.
Risk appetite subsided as today’s session opened, lending greater support to the comparatively risk-off single currency; if market mood shifts throughout the day, this could attract tailwinds to the Pound.
Next week, the German business climate release could dent EUR if it weakens as forecast. Elsewhere, data from the Confederation of British Industry may influence Sterling exchange rates.