Pound Euro (GBP/EUR) exchange rate holds gains as UK sales rise
The Pound Euro (GBP/EUR) exchange rate dipped this morning at the start of the European session, but quicky corrected back up as the UK’s latest retail data impressed.
At the time of writing, GBP/EUR is trading at €1.1684, little changed from the same time yesterday.
Pound (GBP) uptrend limited as GDP release continues to sap morale
The Pound (GBP) has recovered against the Euro (EUR) following a brief hiccup this morning, as impressive UK retail data redeemed the currency.
Yesterday’s GDP data continues to linger in GBP traders’ minds, capping gains for Sterling amid fears of a prolonged recession. Despite reassurances from the National Institute of Economic and Social Research (NIESR) that the British economy will return to growth this quarter, the deeper-than-expected contraction took markets aback.
Yet sales growth in January of more than double the expected amount has helped to buoy investors’ spirits. The release marked the largest monthly rise in trade since April 2021, with sales increasing in all subsectors bar clothing stores.
Joe Maher, an economist with Capital Economics, remarked: ‘Overall, today’s release was stronger than expected and suggests the drag from higher interest rates on consumer spending is fading fast.’ He added that the data: ‘points to the economy soon moving out of recession’; an assessment that may help to soften the shock of Wednesday’s GDP contraction.
Moreover, market sentiment today is risk-on, helping Sterling to climb against the comparatively safe-haven Euro.
Euro (EUR) depressed by German data, USD uptick
The Euro is weakening against its peers this afternoon as an uptick in US Dollar (USD) exchange rates, combined with poor German data, dents investor morale.
Wholesale prices in Europe’s largest economy rose by less than expected in January, potentially contributing towards expectations of a dovish European Central Bank (ECB). The bank has been somewhat less hawkish than the Federal Reserve or the Bank of England (ECB) in recent weeks; although policymaker Isabel Schnabel struck a bolder tone this morning.
Schnabel told markets ‘we must be cautious not to adjust policy stance prematurely’, challenging remarks made by fellow ECB official Francois Villeroy de Galhau which warned against holding off interest rate cuts. Karsten Junius, chief economist and head of economic and strategy research at Bank J. Safra Sarasin in Zurich, comments upon the apparent divergence between policymakers’ views:
‘It’s becoming obvious that there’s no consensus anymore for the high-for-longer policy,’ he said; ‘That stance was a time-dependent approach and is in conflict with the data-dependent approach the ECB officially has adopted now.’
Also weighing upon the Euro is a widespread uptrend in US Dollar exchange rates following the latest producer price inflation data. US PPI increased by more than expected in January, dialling back bets for an imminent interest rate cut from the Fed.
GBP/EUR forecast: exchange rate to trade on Pill speech?
The Pound Euro exchange rate could trade this evening according to a speech from BoE Chief Economist Huw Pill. Pill is likely to address this week’s disappointing GDP release, either reassuring markets that the data is a temporary blip; or else signalling that the bank may need to adopt a more cautious stance ahead.
Consumer sentiment data from the US could also affect GBP/EUR, depressing the Euro if it reflects resilience in the US economy. Increased consumer morale would likely boost the ‘Greenback’, sapping support from the single currency due to the two currencies’ strong negative correlation.
Into next week, British retail data from the Confederation of British Industry (CBI) could alter the trajectory of the Pound Euro exchange rate, while an improvement in consumer confidence in the bloc is likely to subdue GBP/EUR. Subsequently, European PMI data may affect trading alongside fresh inflation data and Germany’s latest Ifo business climate release.