Pound euro (GBP/EUR) exchange rate slumps amid lifeless UK retail activity
The pound euro (GBP/EUR) exchange rate is weakening this morning as a lethargic UK retail sector and ramped up Bank of England (BoE) interest rate bets stifle Sterling’s movements.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1628, down approximately 0.2% from this morning’s opening rate.
Pound (GBP) slumps amid lacklustre retail activity
The pound (GBP) is extending its recent losses this morning following a disappointing batch of retail data.
Retail sales volumes stagnated last month, remaining unchanged from January’s upwardly revised 3.6% increase.
While markets had anticipated that consumer activity would decline by 0.3% in February 2024, the flat reading was attributed to exceedingly wet weather throughout the month.
Offsetting in store losses, however, was a 2.1% surge in online sales as customers stayed indoors, marking the highest increase in online spending since July 2023.
In addition to sluggish retail activity, the Bank of England’s fifth consecutive interest rate hold significantly dented Sterling yesterday, with ramped up interest rate cut expectations continuing to weigh on GBP this morning.
Investment banking giant Morgan Stanley predicts that throughout 2024 the BoE will reduce its base by one whole percentage point, bringing interest rates down to 4.25%.
Economists at Morgan Stanley said in a note:
‘For the first time since September 2021, there were no votes for hikes at an MPC meeting. The guidance was unchanged, but the minutes offered some interesting (dovish) shifts.
We have somewhat greater conviction that “later” means June and not August.’
Between surmounting rate cut bets and dismal retail growth, the pound may continue to face headwinds as the session nears an end.
Euro (EUR) mixed despite improving German business sentiment
The euro (EUR) is trading in a wide range against its peers this morning despite better-than-forecast German data.
The Ifo business climate indicator for Germany climbed to 87.8 in March, rising from last month’s revised 85.7 and surpassing market expectations of 86.
The data marked the highest improvement in business sentiment since June 2023, as companies begin to demonstrate an increasingly optimistic stance heading into the second quarter amid hoped of easing price pressures.
The Ifo, a German based research institute, affirmed that the data offers a renewed sense of optimism for the Eurozone’s largest economy following a dismal winter period.
Joerg Kraemer, Chief Economist at Commerzbank.
‘The strong gain in the Ifo business climate gives us hope. However, an end to the recession in the summer half-year should not be confused with a genuine upturn.’
However, a surge in the US dollar (USD) appears to be limiting EUR’s upside potential this morning, due to the currency pairing’s negative correlation. Should USD’s winning streak continue, the euro may struggle to garner support.
Pound euro exchange rate forecast: ECB speeches to sink the euro?
Looking ahead, speeches from ECB policymakers could impact EUR exchange rates this afternoon. Both Philip Lane and Claudia Buch are due to deliver talks. Amid an increasingly dovish consensus from the central bank, any suggestion that the ECB could begin its unwinding cycle in the coming months may sink the common currency against its peers.
Looking to the UK, a lack of significant data for the remainder of the week may see investors looking towards the mildly impactful Confederation of British Industry’s (CBI) industrial trends orders.
The survey is set to report a minor increase in March to -17, up from last month’s -20. Should the data print as expected GBP could remain on the defensive amid confirmation of continually bleak conditions within the UK’s manufacturing sector.