Pound euro (GBP/EUR) muted near multi-month high despite robust UK retail report
(Updated 15:35, 28/05/24) The pound euro (GBP/EUR) exchange rate edged higher following some upbeat UK retail data, before retreating as the session neared an end.
The Confederation of British Industry’s (CBI) latest distributive trades survey unexpectedly surged to its highest level since December 2022, with the index printing at 8. This notably surpassed market expectations of -24 and sharply rose from April’s dismal -44, as signs of revived consumer activity lent the pound (GBP) some support against its rivals.
Alpesh Paleja, Lead Economist at the CBI, commented:
‘May’s increase in retail sales adds to the swathe of data pointing to an improvement in activity over the near-term. Falling inflation, and continuing real wage growth will contribute to a healthier consumer outlook, in turn supporting the retail sector further.’
However, a mixed market mood and shifting Bank of England (BoE) interest rate cut speculations saw Sterling’s gains fall flat, with GBP retreating in the latter part of the session.
Meanwhile, further dovish remarks from European Central Bank (ECB) policymakers kept the euro (EUR) at bay, as expectations of a June rate cut in the Eurozone remained in focus.
Klaas Knot, Chief of the Dutch Central Bank, said:
‘Policy rates will slowly but gradually move to less restrictive levels. Projection round meetings of the Governing Council will be the key meetings for our interest rate decisions.’
Between dovish sentiment and a fluctuating market mood, the pound euro exchange rate was mostly subdued as the session drew to a close.
At the time of writing, GBP/EUR is trading at €1.1750, virtually unchanged from this mornings’ opening levels.
Moving forwards, could an improving consumer sentiment in Germany leave the common currency to post some modest gains?
Original article continues below:
Pound euro (GBP/EUR) exchange rate fluctuates amid shifting rate cut bets
The pound euro (GBP/EUR) exchange rate is changeable this morning as interest rate cut bets are pulled into focus.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1743, virtually unchanged from this morning’s opening rate.
Euro (EUR) pressured by dovish ECB
The euro (EUR) is trading without a clear direction this morning amid a lack of fresh Eurozone data.
In the absence of any high impact releases, ramped up European Central Bank (ECB) interest rate cut speculations continue to fuel EUR volatility.
While cooling Eurozone inflation and dovish policymaker rhetoric have driven market expectations of a June rate cut, commentary from senior rate-setters this week serves to heighten such speculations.
Philip Lane, the ECB’s Chief Economist, maintained a notably dovish stance during a speech in Dublin, stating:
‘At our June meeting, 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.’
However, despite surmounting anticipation of a June rate cut, a weakening US dollar (USD) lends EUR some modest support, due to the currency pairing’s negative correlation.
Pound (GBP) buoyed by deferred rate cut bets
The pound (GBP) is quiet this morning as markets await the latest UK retail data.
With domestic releases in short supply, falling Bank of England (BoE) interest rate cut speculations serve to keep Sterling afloat.
Analysts and investors alike have been mulling over the likelihood of decreased monetary unwinding as the recently announced UK general election takes precedent for the central bank.
Economists at Goldman Sachs noted:
‘Labour leads in the polling averages by about 20ppts, and fiscal space will be relatively limited in the next Autumn Statement, so the space for policy uncertainty in the near term is relatively limited as well.’
Elsewhere, a changeable market mood leaves the increasingly risk-sensitive pound rudderless.
Pound euro exchange rate forecast: German consumer confidence to lift EUR?
Looking ahead, Germany’s latest GfK consumer confidence survey is due for release tomorrow. The consumer climate index is due to rise slightly to -22.5 up from the previous month’s -24.2.
Should the data print as forecast, gradually improving consumer confidence in the Eurozone’s largest economy may serve to underpin recent signs of German economic recovery. However, with the index due to show a deeply negative reading, EUR’s upside potential will likely be limited.
The latest German inflation data is also due for release on Wednesday and could drive additional EUR movement. Inflation in Germany is due to have warmed to 2.4% in May, which may lend the common currency some support amid signs of a bumpy return to the Deutsche Bundesbank’s 2% target rate.
Turning to the pound, a lack of notable UK releases will likely see GBP left vulnerable to market risk dynamics. The increasingly risk-sensitive currency may strengthen against its safer counterparts, should upbeat trade permeate global markets. Alternatively, gloomy trading conditions could see EUR take precedent.