Pound Euro Exchange Rate Trades Shy of One-Month High following UK Sales Slump

Pound Euro (GBP/EUR) Exchange Rate Claws Back Losses

(Updated 17:00, 18/08/23) The Pound Euro (GBP/EUR) exchange rate has managed to recoup this morning’s losses, which were prompted by a slump in UK retail sales.

Domestic British sales shrank a whopping 1.2% in July, far worse than the forecast 0.5% contraction. This initially led to a drop in the Pound (GBP).

However, Sterling soon regained lost ground. The slump in sales was primarily due to unseasonably wet weather, with many analysts hopeful that retail trade would improve in the coming months.

In addition, the recent rise in UK wage growth and persistently sticky core inflation have elevated Bank of England (BoE) interest rate rise bets. This continued to underpin the Pound.

After slipping to €1.1685 this morning, the Pound Euro pair has recovered to €1.1717, at the time of writing. Although down from yesterday’s one-month high of €1.1732, the pairing is up 1.5% on the week.

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Pound Euro (GBP/EUR) Exchange Rate Weakens amid UK Retail Worries

After hitting a one-month high yesterday evening, the Pound Euro (GBP/EUR) exchange rate is retreating today. A sharp slump in UK retail sales is weighing on the Pound (GBP).

At the time of writing, GBP/EUR is trading at around €1.1695, down 0.2% on the day and 0.3% from last night’s one-month high. However, it’s still up 1.3% on the week.

Pound (GBP) Softens amid Contracting Retail Sales

The Pound retreated further from its one-month high against the Euro (EUR) this morning after gloomy UK retail sales data.

Domestic British sales slumped by a staggering 1.2% in July, far worse than the forecast 0.5% contraction, as unseasonably wet weather dampened consumer spending. Meanwhile, June’s sales growth was revised down from 0.7% to 0.6%.

The data serves as a reminder of the fragility of the UK retail sector, and the British economy as a whole. Many retail businesses continue to struggle in the wake of the pandemic and amid the surge in borrowing costs.

However, losses may be limited as some analysts believe the picture will get better for retailers in the months ahead. Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, said July’s slump is likely ‘no more than a weather-related dip.’

Furthermore, Bank of England (BoE) interest rate hike bets are keeping a floor under GBP. This week saw record-high wage growth and stubborn core inflation, which have boosted bets on more tightening from the British central bank.

Euro (EUR) Limited amid Lack of Support

Meanwhile, the Euro seems to lack support today, which is capping its gains against the weakening Pound.

The Eurozone’s final consumer price index has so far had no impact on the single currency, as both headline and core inflation printed in line with preliminary estimates.

One factor pressuring the common currency is its strong negative correlation with the US Dollar (USD). After weakening yesterday, USD is regaining ground today, which is therefore dampening EUR demand.

Pound Euro Exchange Rate Forecast: Sterling to Continue Trending Lower?

The Pound Euro exchange rate could continue to trim its gains during today’s session as the UK’s weak retail sales report weighs on Sterling.

Market sentiment could also be a factor. The mood is currently downbeat, which may dent the increasingly risk-sensitive Pound and lend support to the safer Euro.

Looking ahead to next week’s session, the GBP/EUR exchange rate may have a quiet start to the week amid a lack of high-impact data.

The PMI surveys for August are then due out midweek. These releases will give a snapshot of the health of the Eurozone and UK private sectors, so they could cause significant movement.

Samuel Birnie

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