Pound euro (GBP/EUR) exchange rate rangebound as UK consumer activity stagnates
The pound euro (GBP/EUR) exchange rate is trading without a clear direction this morning following a lacklustre set of UK retail data.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1682, virtually unchanged from this morning’s opening rate.
Pound (GBP) falters amid weak retail sector
The pound (GBP) on the defensive this morning following the UK’s latest retail data.
Retail sales flatlined in March following an upwardly revised 0.1% in February and missing market expectations of a 0.3% rise.
Amid concerns that cost-living pressures continue to stifle UK consumer activity, reports of a stagnant retail sector serve to sour Sterling sentiment.
The disappointing figure could also encourage the Bank of England (BoE) to promptly begin lowering interest rates, leading to a weakened pound as the session progresses.
Alex Kerr, assistant economist at Capital Economics, explains:
‘Despite the softer-than-expected data, retail sales still added almost 0.1 percentage points to real GDP growth in Q1. Moreover, the prospect of interest rate cuts and the boost to real household incomes, from falling inflation and the 2p cut to national insurance in April, suggest the recovery in consumer spending will continue throughout this year.’
Euro (EUR) wavers following German PPI
The euro (EUR) is subdued this morning despite Germany’s latest producer price index (PPI) falling less than forecast.
German producer prices fell by 2.9% last month, missing market expectations of a 4% decline, driven primarily by lower energy prices.
Amid a lack of further releases, markets recall the latest commentary from European Central Bank (ECB) Vice President Luis de Guindos, amid soaring expectations that the central bank will lower its base rate in June.
Guindos reiterated the ECB’s data-driven approach, suggesting the possibility of a June interest rate cut:
‘If our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.
I think that we have been crystal clear: if things continue as they have been evolving lately, in June we’ll be ready to reduce the restriction of our monetary policy stance.’
Pound euro exchange rate forecast: BoE speeches to drive volatility?
Coming up, speeches this afternoon from BoE policymakers Sarah Breeden and Dave Ramsden could drive GBP exchange rates. Should either of the policymakers’ signal towards the possibility of a June interest rate cut, Sterling could slump against its peers.
For the euro, a data-light end to the week could see the common currency left vulnerable to surmounting interest rate cut speculations, deterring investor interest.
Elsewhere, market risk dynamics could impact the pound euro exchange rate this afternoon. As conflict escalates in the Middle East, further risk-on flows could see investors favouring the increasingly risk-sensitive pound over its safe-haven rivals.