Pound Euro (GBP/EUR) Exchange Rate Continues to Soften
The Pound Euro (GBP/EUR) exchange rate extends its downward trajectory today as UK housing data dampens Pound (GBP) morale. Meanwhile, Euro (EUR) investors remain encouraged by yesterday’s surprise uptick in German factory orders and October’s finalised service-sector PMI.
At the time of writing, GBP/EUR is trading at €1.1513, having fallen by almost 0.4% in the past 24 hours.
Pound (GBP) Subdued amid Abysmal Mortgage Growth
The Pound is trading broadly lower against its peers today as weak UK housing data depresses Sterling sentiment. A better-than-expected retail sales monitor from the British Retail Consortium (BRC) fails to boost morale as news of disappointing mortgage growth weighs upon GBP.
As the Asian session began, the BRC’s monthly retail sales monitor rose by 2.6% – slowing from a 2.8% gain in September, yet still 0.2% above expectations. Nevertheless, Helen Dickinson, chief executive at the BRC, observed:
‘Retail sales growth slowed as high mortgage and rental costs further shook consumer confidence. Many households are also delaying their Christmas spending.’
High mortgage costs are driving down demand for loans, as the EY ITEM Club forecasts the weakest figures in a decade; experts say mortgage loans are expected to rise just 1.5% in 2023 (net) and 2% net in 2024.
Between 2015-2019, mortgage lending grew by 3% – yet the EY ITEM Club predicts that growth will now fall short of this figure until beyond 2025. The data reflects a wider economic environment wherein, according to EY’s Anna Anthony:
‘Significant cost-of-living pressures continue to affect households’ ability to spend, and an increasing number are finding it difficult to keep up with loan repayments.’
Investors’ focus on continuing cost pressures is keeping Sterling pressured, while a lack of further domestic data limits GBP’s prospects today.
Euro (EUR) Trades Mixed as Data Misses Forecasts
The Euro is climbing today against the Pound and several other peers, though struggles in some exchange rates as this morning’s data from Germany and the bloc missed forecasts.
While yesterday’s factory orders exceeded expectations, boosting the single currency, today’s industrial production release disappointed. German production contracted by 1.4% in September rather than the 0.1% forecast.
This marked the fourth consecutive month of contraction, reigniting concerns surrounding the strength of Germany’s economy. Thomas Gitzel, chief economist at VP Bank, remarked:
‘The industry-heavy German economy is dependent on production in order to achieve reasonable economic growth rates,’ adding that industrial production this year has been weak.
Further depressing the Euro today are US Dollar (USD)-related headwinds. Investors keenly await speeches from several members of the Federal Open Market Committee (FOMC) including Governor Michael Barr, Governor Christopher Waller, NY Fed President John Williams and Dallas Fed President Lorie Logan.
Amongst the speakers are several hawks, whose commentary may boost USD; driving the Euro down on account of the strong negative correlation between the US Dollar and the single currency.
GBP/EUR Exchange Rate Forecast: King’s Speech to Influence GBP?
Given a lack of significant UK data for the remainder of the session, markets may be moved to dwell on today’s royal event: a speech given by King Charles to reopen Parliament.
Charles laid out legislative changes to be enacted by the Conservative government, in an opportunity for the Tory party to attract support ahead of the next general election. Yet confirmation of plans to drill for fresh oil, amongst reassurances that the Prime Minister is committed to increasing economic growth, come at a difficult juncture.
With geopolitical and cost-of-living issues at the forefront of voters’ minds, the government’s controversial plans may spark volatility. If markets anticipate political tensions in the UK, Sterling could come under further pressure.
Elsewhere, speeches this afternoon from FOMC members could affect EUR exchange rates. Amid political and economic developments, GBP/EUR may trade in a wide range.