Pound Euro (GBP/EUR) Exchange Rate Bolsters amid Elevated BoE Rate Hike Bets
(Updated 26/5/23, 16:15)
The Pound Euro (GBP/EUR) exchange rate is holding is earlier gains as strong retail sales signal a resilient retail sector, elevating rate hike bets. With higher-than-expected inflation and retail sales, the Bank of England (BoE) will have more breathing room for further rate hikes. As such, Sterling looks to be heading into the weekend with modest strength.
At time of writing the GBP/EUR exchange rate is trading around €1.1519, a 0.31% leap from this morning’s opening levels.
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GBP/EUR Exchange Rate Rallies as UK Retail Sales Beat Forecasts
The Pound Euro exchange rate is strengthening as UK retail sales jumped 0.5% in April.
At time of writing the GBP/EUR exchange rate is trading around €1.1520, a 0.29% leap from this morning’s opening levels.
Pound (GBP) Supported by Resilient Retail Sector
The Pound (GBP) is finding mixed success against its peers this morning as the Office for National Statistics (ONS) released the latest retail sales figures. Against expectations of a modest 0.3% rise, retail sales jumped by 0.5% in April.
Retail sales picked up better than expected last month as the Easter break boosted sales, along with improving weather. Bouncing back from a torrid March where sales fell by 1.2%, sales at department stores jumped by 1% after slumping 1.8% previously. Oliver Vernon-Harcourt, Head of Retail at Deloitte, commented:
‘April saw a surprising uplift in retail sales despite ongoing inflationary pressures.
‘The economic environment remains incredibly tough for many, but consumer confidence is slowly improving from record lows seen in the past year.’
Elsewhere, Chancellor Jeremy Hunt has pledged to support the Bank of England (BoE) on further interest rate hikes. Speaking to Sky, Hunt also said he was comfortable with the UK falling into a recession if it means inflation comes down. When asked if he trusted the BoE to do what was needed to tackle inflation, Hunt replied:
‘Yes, because in the end, inflation is a source of instability. If we want to have prosperity, if we want to grow the economy, if we want to reduce the risk of recession, we have to support the Bank of England in the difficult decisions that they take.’
Euro (EUR) Quiet amid Negative Correlation with US Dollar
Meanwhile, a lack of economic data is keeping the Euro (EUR) fairly muted. The negative correlation it shares with the US Dollar could be keeping the single currency moderately supported.
With optimism returning around a potential deal being brokered over the debt ceiling talks, market mood is improving. President Joe Biden and House Speaker Kevin McCarthy appear to be drawing closer to an agreement to reduce spending and raise the debt limit. Doing so would avoid the US defaulting on their debts and the financial ramifications would be far reaching.
If a deal can be struck before the June 1 deadline, the US Dollar could soften amid improving market sentiment, and the Euro could strengthen.
Pound Euro Forecast: US Debt Limit Solution to Boost the Euro?
Looking ahead, the Pound Euro exchange rate could see further movement if a deal can be struck between the White House and Republicans over the US debt ceiling negotiations. Avoiding a catastrophic financial disaster would significantly improve the market mood, drying up the safe-haven flows. A weakening ‘Greenback’ could see the Euro climb on improved sentiment.
Elsewhere, the Pound will head into the weekend on market sentiment as the data calendar remains thin. Bolstered interest rate hike bets from strong retail sales could keep Sterling afloat.