Pound Euro (GBP/EUR) Exchange Rate Softens as Upbeat Sales Fail to Inspire Gains
(Updated, 14:25, 21/07/23) After wavering this morning, the Pound Euro (GBP/EUR) exchange rate eventually succumbed to selling pressure.
The Pound (GBP) was unable to sustain an initial upside, which was inspired by better-than-forecast retail sales data. Domestic UK sales grew 0.7% last month, beating expectations of 0.2%.
Sterling at first rose in response but has since slipped back down. The recent pullback in Bank of England (BoE) interest rate hike bets remains a headwind for GBP. After UK inflation came in softer than expected on Wednesday, markets are betting on less aggressive action from the BoE.
At the time of writing, GBP/EUR is trading at around €1.1538, modestly down on the day.
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Pound Euro (GBP/EUR) Exchange Rate Mixed in Spite of Rising UK Sales
The Pound Euro (GBP/EUR) exchange rate has seen some volatility this morning, as stronger-than-forecast retail sales growth failed to provide Sterling with a sustainable upside.
At the time of writing, GBP/EUR is trading at around €1.1559, having shifted between highs of €1.1579 and lows of €1.1538.
Pound (GBP) Wobbles despite Strong Sales Data
The Pound (GBP) initially rose this morning after UK retail sales data exceeded forecasts.
The latest report from the Office for National Statistics (ONS) revealed that domestic sales growth accelerated to 0.7%, much higher than the expected 0.2%, as the hottest June on record boosted food sales.
However, Sterling quickly shed its gains. Although sales volumes rose strongly month over month, growth was down on an annual basis. Furthermore, May’s sales growth was revised down from 0.3% to 0.1%.
Grant Fitzner, Chief Economist at the ONS, said:
‘Retail sales grew strongly, with food sales bouncing back from the effects of the extra bank holiday, partly helped by good weather, and department stores and furniture shops also having a strong month.
‘However, these were partially offset by falls in fuel, garden centres and clothes shops. Growth still fell on an annual basis, but at its slowest rate since the beginning of the Ukraine war.’
It seems as though the uptick in sales volumes has failed to meaningfully counteract the selling pressure facing the Pound in the wake of Wednesday’s softer inflation data. With markets continuing to reprice Bank of England (BoE) interest rate rise bets, Sterling is struggling to press the advantage.
Euro (EUR) Undermined by Jump in USD
Meanwhile, the Euro (EUR) is also struggling for a clear direction today amid a lack of Eurozone economic data.
Although the single currency was initially able to bounce back against the Pound and start to find success, it then relinquished its gains.
A sharp jump in the US Dollar (USD), with which the Euro is negatively correlated, seemed to put notable pressure on EUR exchange rates. At the same time, the absence of Eurozone data means the common currency is struggling to put up a fight.
Pound Euro Exchange Rate Forecast: GBP/EUR to Continue Wavering?
As the session unfolds, we could see the Pound Euro pair continue to waver as mixed factors play on both currencies.
Risk appetite could also affect GBP/EUR. The market mood is currently mixed. An improvement would likely support the more risk-sensitive Pound over the safer Euro; a souring of sentiment could have the opposite effect.
Looking forward to next week’s session, Monday’s trade could see some volatility in the Pound Euro pair as the latest flash PMI surveys are published.
Last month, the Eurozone’s abysmal PMI results hammered the common currency, with the manufacturing score showing that factory activity contracted at its fastest pace in three years. More gloomy results for the bloc could weigh on the Euro.
Sterling may find any upside limited, however, as forecasters expect the UK PMIs to show declining activity too.
Investors will also be eager to see if the PMIs give any clues as to the trajectory of UK inflation. Previously, the British services PMI has contained evidence of persistent inflationary pressures. Could the trend continue, thereby providing the Pound with support?