Pound Euro Exchange Rate Wavers as Deutsche Bank Shares Tumble
(Updated 16:15, 24/3/23)
The Pound Euro (GBP/EUR) exchange rate is trading erratically this afternoon as banking contagion fears return to haunt US and European banks. Germany’s biggest bank, Deutsche Bank, has seen a third day of sliding shares as fears mount of a banking crisis. Nordea Chief Analyst Jan von Gerich, said of the situation:
‘Underlying sentiment is still cautious and in this environment no one wants to go into the weekend risk-on. It’s very volatile and it’s too early to say things will calm down.’
At time of writing the GBP/EUR exchange rate is trading around €1.1361, relatively unchanged from this morning’s opening levels.
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GBP Euro Climbs as Retail Returns to Pre-Pandemic Levels
The Pound Euro exchange rate is strengthening this morning after UK retail sales increased 1.2% in February.
At time of writing the GBP/EUR exchange rate is trading around €1.1380, a 0.34% jump from this morning’s opening levels.
Pound (GBP) Undermined by Cost-of-Living Pressures
The Pound is climbing modestly this morning against its peers as retail sales printed better than expected.
Against a predicted modest increase of 0.2%, retail sales volumes jumped by 1.2% in February, following a 0.9% climb. The Office for National Statistics (ONS) figures point to the biggest increase in four months as consumers shrug off living cost pressures and continued to spend. The biggest contributors were non-food stores with discount outlets and charity shops leading the drive. Ashley Webb, UK Economist at Capital Economics, warned that it was premature to assume the retail sector is on a sustained path of recovery:
‘At face value, these data further add to the view that the recent resilience in activity is still holding up. But when households’ finances are under pressure, it is possible that any improvement in retail sales will just be met by a softening in non-retail spending (such as restaurants).’
With the latest jump in sales for February, the retail sector returned to February 2020 pre-pandemic levels. However, sales were down 0.3% in the three months to February when compared to the three months prior. With interest rates lifted again yesterday, and the ongoing cost-of-living crisis, Darren Morgan, ONS Director of Economic Statistics said:
‘However, the broader picture remains more subdued, with retail sales showing little real growth, particularly over the last eighteen months with price rises hitting consumer spending power.’
Euro (EUR) Supported by Strong Service Sector Growth
The Euro is also trading without a clear direction this morning as the latest PMIs printed to mixed results. Despite a drop in manufacturing, the service sector drives Eurozone growth higher.
A strong revival in the service sector helped buoy business activity in the Euro area, pushing it to the highest level since May. Services jumped from 52.7 to 55.6 in March, exceeding market forecasts. However, caping gains for the Euro was stuttering factory activity. Against an expected modest climb in the manufacturing sector, PMIs fell to 47.1, the lowest score since November.
Growth in jobs helped spur business activity, as it climbed to a 10-month high, and business confidence remained resilient despite mounting pressures. Chris Williamson, Chief Business Economist at S&P, commented:
‘The euro zone economy is showing fresh signs of life as we enter spring. The survey is consistent with GDP growth of 0.3% in the first quarter, accelerating to an equivalent rate of 0.5% in March alone.’
Pound Euro Forecast: BoE Speech to Boost the Pound?
Looking ahead, the Pound Euro exchange rate could see further movement with a speech from Bank of England (BoE) policymaker Catherine Mann. Any further comments on monetary policy could driver Sterling. After BoE Governor Andrew Bailey spoke today of inflation remaining far too high, any further hawkish comments could boost the Pound.
Meanwhile, the Euro will be left to trade on market sentiment and a continued digestion of the latest PMI data.