Pound Euro (GBP/EUR) exchange rate slumps following downbeat data releases
The Pound Euro (GBP/EUR) exchange rate is facing headwinds this morning amid bleak data from both the UK and Eurozone.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1654, down approximately 0.2% from this morning’s opening rate.
Pound (GBP) dented by bleak retail data
The Pound (GBP) is falling this morning as the latest UK retail sales data reinforces concerns of a looming UK recession.
Retail sales in December were reported to have contracted significantly more than expected by 3.2%, falling below forecasts of 0.5%.
The weighty slump in UK retail activity is serving to sour Sterling sentiment this morning, as renewed signs of economic distress fuel speculations that the UK economy may have fallen into a recession during last year’s ‘Golden Quarter’.
Alex Kerr, economist at consultancy Capital Economics, observed:
‘The drags from the cost-of-living crisis and sharp rise in interest rates are still weighing on real incomes and consumer spending.’
With retail activity now at a two-year low, investors may once again pull their Bank of England (BoE) interest rate cut bets forwards throughout today’s session, as inflationary pressures continue to drain UK spending.
Euro (EUR) slumps on cooling PPI
The Euro (EUR) is edging lower this morning amid rapidly cooling German factory inflation.
Germany’s latest producer price index (PPI) cooled more than forecast in December, contracting by 1.2%, rather than 0.5% as expected.
While markets often use this index as a precursor for wider inflationary trends, significant cooling could leave markets resizing their European Central Bank (ECB) interest rate cut bets as today’s session progresses.
However, the release of the latest ECB monetary policy meeting minutes exhibited a notably hawkish shift in policymaker attitudes.
An excerpt from the minutes stated:
‘The remaining distance of inflation from the ECB’s target, the waning of disinflationary supply-side tailwinds and, overall, still-high levels of domestic inflation continued to call for maintaining a sufficiently restrictive stance.’
As such, hawkish rhetoric may keep the Euro afloat ahead of ECB President Christine Lagarde’s speech later this morning.
Pound Euro exchange rate forecast: ECB speeches to drive EUR volatility?
Looking ahead, speeches from European Central Bank (ECB) policymakers may drive Euro movement for the remainder of today’s session. Investors will be looking to Lagarde for a continuation of her increasingly restrictive narrative regarding monetary policy. Should Lagarde indeed strike hawkish, the common currency may garner investor support amid signs that the central bank is likely to keep interest rates at their current levels for the foreseeable future.
With notable economic data be in short supply for the remainder of the day, the Pound Euro exchange rate may be vulnerable to shifts in risk appetite. Amid increasing hostility in the Middle East, renewed inflationary concerns could once again spark a safe-haven dash amid gloomy trade.
The increasingly risk-sensitive Pound may struggle to attract support in this instance, though a spell of upbeat trade may lift GBP against the safe-haven Euro.