Pound Euro (GBP/EUR) Fluctuates amid UK Cost-of-Living Pressures
The Pound Euro (GBP/EUR) exchange rate is trading erratically this morning as UK retail sales unexpectedly fell despite Black Friday and the World Cup.
At time of writing, the GBP/EUR exchange rate is around €1.1440, relatively unchanged from this morning’s opening levels.
Pound (GBP) Undermined by Living Cost Squeeze
The Pound (GBP) is struggling for demand today against its peers after retail sales unexpectedly slumped 0.4% MoM in November.
Despite Black Friday and World Cup promotions, expectations of a 0.3% increase were met with a drastic fall. The cost-of-living crisis rumbles on and continues to weigh on consumer spending in the run up to Christmas. The latest figure further points to the economy already in a recession.
Another drop in retail sales meant that retail sales volumes dropped t 1.5% below pre-pandemic level. Despite inflation softening yesterday, the future remains bleak for the retail sector. Olivia Cross, economist at Capital Economics, warned that a drop in inflation is unlikely to provide relief for consumers. Cross added:
‘We doubt there is a sustained recovery in retail sales volumes in the pipeline. We expect that high inflation will drive further falls in real household disposable income of 1.1% in Q4 2022, which will keep sales volumes subdued in December.’
Meanwhile, flash PMI estimates for services and manufacturing provided mixed relief for Sterling. A surprise uptick in services PMI showed the first stagnation in the sector after two consecutive months of contracting activity. Elsewhere, manufacturing fell further than expected as activity fell to its lowest level since May 2020.
Euro (EUR) Climbs amid Better-than-Expected PMI Data
Meanwhile, the Euro (EUR) is enjoying modest tailwinds from relatively positive manufacturing and services PMI data. Despite remaining in contraction territory, improvements across the board lifted the single currency.
A sixth consecutive month of falling activity in the manufacturing activity is unlikely to boost the Euro. However, the reading also points to a third month of improvement. Services, meanwhile, also ticked higher than expected and highlights the smallest contraction in four months.
Elsewhere, support lingers after the European Central Bank (ECB) opted for a moderately hawkish interest rate hike. ECB President Christine Lagarde reassured investors that two more 50bps rate hikes seem highly likely, buoying Euro investors.
Pound Euro Exchange Rate Forecast: Dire UK Economy to Weigh on Sterling?
Looking ahead, the Pound Euro exchange rate could see further movement hinged on market mood. With little data to go on before the weekend, market sentiment and domestic issues are likely to influence the pairing.
Looking ahead to next week’s session, a thin trading calendar for the Pound could see it trade on domestic woes. With ongoing strike action and a downbeat economy, Sterling could be in for a rough ride.