Pound Euro (GBP/EUR) Exchange Rate Tumbles on Poor UK Retail Data

Pound Euro (GBP/EUR) Exchange Rate

(Updated 16:27 16/09/22)

The Pound Euro (GBP/EUR) exchange rate fell further over the course of the day. A paring back of bets on a more aggressive rate hike from the Bank of England (BoE) next week likely pulled the currency pair lower. As reported by Reuters, investors switched their bets to a 0.5% rate hike on Friday. Earlier this month, Reuters polled economists who saw a more than 80% chance of a 0.75% rate hike from the BoE.

Fears of a UK recession may have also contributed to GBP/EUR’s falls today. Following this morning’s poor retail sales figures, economists signaled that the country may have in fact already entered a recession.

Olivia Cross, an economist at Capital Economics, said:

‘The 1.6% drop in retail sales volumes in August supports our view that the economy is already in recession. Retail sales will probably continue to struggle as the cost of living crisis hits harder in the coming months.’

At time of writing the GBP/EUR exchange rate is at around €1.1403, which is down roughly 0.5% from this morning’s opening figures.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Slides a UK Retail Sales Disappoint

The Pound Euro (GBP/EUR) exchange rate is falling today. Worse-than-expected retail sales figures are weighing on the pair. This may be adding to the UK’s poor long-term outlook and heightening recession fears.

Bets on an aggressive path of tightening from the European Central Bank (ECB) may also be pulling GBP/EUR lower today. Today’s final reading of Eurozone inflation figures were revised higher, prompting bets on the Euro.

At time of writing the GBP/EUR exchange rate is at around €1.1416, which is down roughly 0.4% from this morning’s opening figures.

Pound (GBP) Drops as Retail Sales Figures Tumble amid Cost-Of-Living Crisis

The Pound (GBP) is plummeting today after an above-forecast fall in August’s retail sales figures. Sterling has slipped to a 37-year low against the US Dollar as the figures add to recession fears.

Retail sales figures in August fell by 1.6% versus a forecast decline of 0.5%. The fall was the largest since December 2021. Analysts highlighted soaring prices amid the UK’s cost-of-living crisis as a primary driver behind the decline.

Olivia Cross, assistant economist at Capital Economics, said:

‘With CPI inflation yet to peak, it will continue to squeeze real incomes and weigh on consumer spending in the coming months.’

The data has led to bets on a more aggressive path of rate hikes from the Bank of England (BoE), however. This may be underpinning the Pound today. Economists have signaled that the soaring costs for businesses will need to be tamed by interest rate increases.

Euro (EUR) Firms amid ECB Rate Hike Bets

The Euro is edging higher against some of its peers today amid a risk-off market mood. The final reading of inflation figures for the Eurozone may also be boosting EUR. August’s figures were revised higher to 9.1%, prompting expectations for further rate hikes from the ECB.

Hawkish quotes from ECB officials earlier this week may also be bolstering rate hike bets. Speaking on Thursday, ECB Vice President Luis de Guindos signaled that the central bank must take determined action to tame inflation in the trading bloc.

The Euro may also be underpinned today by further gains by Ukrainian forces in their recent counterattacks. Ukraine recently recaptured the city of Izium for Russian forces.

Additionally, reports that the German government has taken control of Russian oil importer Rosneft may help to lessen fears of a Eurozone energy crisis.

GBP/EUR Exchange Rate Forecast: Will BoE Hike Rate as Forecast?

Looking ahead to the coming week for the Pound (GBP), investors will be most keenly awaiting the BoE’s interest rate decision on Thursday. The central bank is forecast to hike interest rates by 0.5%. The impact could be minimal however, given that markets have largely priced in the decision.

If the rate decision surprises to the upside, then it could bolster Sterling. Investors will also be looking to the BoE’s forward guidance for any hints of the pace of policy tightening.

September’s PMI figures could also see GBP rise if they print as forecast. Private sector output is predicted to return to growth, potentially bucking the downward trend for the UK’s economy.

For the Euro, German PPI figures on Tuesday could bolster the Euro and increase ECB rate hike bets if they rise as forecast.

Speaking of the ECB, meetings for the central bank on Wednesday and Thursday could prompt movement if they give any indicators of forward policy.

Finally on Friday, PMI figures for Germany and the Eurozone could weigh on the Euro if private sector performance falls as forecast.

Gareth Monk

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