Pound Euro (GBP/EUR) Rangebound on Wavering Eurozone Optimism
The Pound Euro (GBP/EUR) exchange rate is fluctuating as strong German industrial production is offset by slumping retail sales.
At time of writing, the GBP/EUR exchange rate is around €1.1343, a 0.28% slip from this morning’s opening levels.
Euro (EUR) Supported by Strong German Industrial Production
The Euro (EUR) is wavering against many of its peers this morning. Mixed data out of Germany is failing to rally the Euro after a better-than-expected industrial production data was offset by declining retail sales.
A strong recovery from a 2.4% drop in December, and far above forecasts, industrial production in Germany soared by 3.5% MoM. The sharpest growth since June 2020, a recovery in Europe’s largest economy could buoy investors. On the annual front, industrial activity fell 1.6% YoY, a mild improvement from a 3.3% in the last month.
However, German retail sales soured the mood as they plunged 6.9% YoY in January, far more than the expected 6.1%. This marked the ninth consecutive slump. On a monthly basis, retail sales came in at -0.3% against an expected 2% climb. A combination of high inflation and economic uncertainty weighed on consumers’ minds. Carsten Brzeski, Global Head of Macro at ING, warns that growth optimism is still premature, adding:
‘What is also remarkable is the fact that January retail sales did not correct but continued their downward trend from the end of last year. While industry could become a mild growth driver in the first quarter, private consumption looks set to be a drag.’
Pound (GBP) Quiet amid Lack of Economic Data
The Pound (GBP) continues its struggles for much demand this week amid a lack of major economic data. Further evidence that the UK labour market is cooling could be weighing on GBP investors’ minds.
The latest survey from the Recruitment and Employment Confederation and KPMG has found that pay growth has slowed, and permanent job placements have fallen for the fifth straight month. Victoria Scholar, Head of Investment at Interactive Investor, commented:
‘The figure highlights the cautiousness among businesses to hire permanent staff amid the macroeconomic headwinds of slowing growth, a softening consumer, rising interest rates, and inflated costs.’
Meanwhile, providing some modest support to the Pound, is news that RMT has suspended strike action at Network Rail. With the UK’s longest running rail dispute raging on, a breakthrough could finally put an end to strikes that have continued since last Spring. An RMT spokesperson said:
‘The RMT national executive committee has taken the decision to suspend all industrial action on Network Rail following receipt of a new offer from the employer.
‘Further updates will be given on all aspects of the national rail dispute in the coming days.’
Pound Euro Exchange Rate Forecast: Hawkish ECB to Lift the Euro?
Looking ahead, the Pound Euro exchange rate could be left to market sentiment amid a lack of major data for either pairing. However, with the European Central Bank (ECB) maintaining its hawkish rhetoric, the Euro could climb on optimism.
Meanwhile, Sterling will be left vulnerable to domestic woes and an increasingly uncertain economic forecast. With political volatility ever present too, the Pound could find it difficult to gather much strength in the coming days.