Pound Euro Exchange Rate Climbs amid Stronger-than-expected Retail Sales
The Pound Euro (GBP/EUR) exchange rate is firming in the wake of strong UK retail sales. A second consecutive month of rising UK retail sales hinted at a resilient economy.
At time of writing the GBP/EUR exchange rate is trading around €1.1705, a 0.61% jump from the morning’s opening levels.
Pound (GBP) Boosted by Strengthening Retail Sector
The Pound (GBP) is finding some renewed strength this morning in the wake of better-than-expected retail sales. Against expectations of a 0.2% decline, sales figures for May improved and increased 0.3%.
The Office for National Statistics (ONS) released the latest report of retail sales volumes and showed the resilience of the retail sector. Despite inflation’s squeeze on consumer spending, investors were buoyed on UK shoppers appearing to weather the cost-of-living storm.
Coming a day after the Bank of England (BoE) raised interest rates to the highest levels since 2008, there are fears that this spending momentum may run out of steam. Ruth Gregory, Deputy Chief UK Economist at Capital Economics, commented:
‘The figures were far better than we had expected. But our view is still that the growing drag on activity from higher interest rates will eventually tip the economy into recession, generating a 0.5% peak to trough fall in real consumer spending.’
Euro (EUR) Undermined by Stalling Business Growth
Meanwhile, the Euro (EUR) is under pressure this morning after weaker-than-expected flash PMIs printed, highlighting a stuttering economy.
Eurozone business growth stalled this month as the manufacturing sector experienced a deepening downturn, whilst services also slowed. The flash estimates could be welcomed by European Central Bank (ECB) policymakers, but not necessarily by EUR investors. With the central bank struggling to bring inflation down to their target of 2%, a cooling economy could allow them to slow their aggressive rate hike cycle.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented on the data and its ramifications for the Euro:
‘After euro zone GDP fell for the second time in a row in the first quarter, the probability has increased somewhat that the GDP change will again carry a negative sign in the current quarter.’
Pound Euro Forecast: ECB Speeches to Boost the Euro?
Looking ahead, the Pound Euro exchange rate could see further movement with speeches from ECB policymakers. With a downturn in confidence, hawkish comments could provide a boost for EUR investors.
Meanwhile, the Pound will be left to trade on market sentiment heading into the weekend amid a lack of economic data. Investors will continue to digest the busy week, and a resilient economy combined with elevated rate hike bets could support Sterling.