GBP/EUR exchange rate rises as UK sales increase
The pound euro (GBP/EUR) exchange rate is trending higher this morning following the release of the UK’s latest sales data. As expected, retail activity recovered in July as sales in non-food stores rose by 1.4%.
At the time of writing, GBP/EUR is trading at €1.1739, having climbed by almost 0.5% in the past 24 hours.
Upbeat retail data buoys pound (GBP)
The pound (GBP) is supported today by July’s upbeat retail data. While the release printed as forecast, news that sales improved from June’s contraction nevertheless lent Sterling a boost.
The reversal of declining sales activity is attributed to a rise in shopping at non-food stores: department stores and sports equipment stores saw a surge in sales, while stalls, markets, vending machines, and door-to-door sales also increased.
Liz McKeown, the ONS’ director of economic statistics, explained: ‘Retail sales grew in July led by increases in department stores and sports equipment shops with both the Euros and discounting across many stores boosting sales.’
Meanwhile, the previous month’s dip was ascribed to an unusually cool and wet June.
For the Bank of England (BoE), the recovery in UK sales could mean less pressure to enact another interest rate cut in the near term. Policymakers have several economic indicators to consider, including business activity and GDP.
While inflation in the UK service sector declined in July, the UK’s unemployment rate has fallen suggesting that restrictive monetary policy is having a limited effect on hiring practices. Moreover, the economy is clearly on an expansion path despite high interest rates, undermining the argument to normalise monetary policy.
Euro (EUR) pressured by strength in the US dollar
The euro (EUR) is subdued this morning as lingering US dollar (USD) strength pressures the negatively-correlated single currency. Amid a lack of domestic data, USD performance is driving EUR movement.
The ‘Greenback’ surged higher yesterday following a smaller-than-expected jobless claims report and strong retail data. The upbeat news helped USD regain a portion of its losses after spell of weakness in the first half of the week.
Also weighing upon the single currency may be a drop in consumer confidence in the Eurozone. Industrial production in the bloc was also shown to have declined earlier in the week, despite forecasts of growth.
Sluggish manufacturing activity is likely to be a concern for EUR: factory output remains below the levels recorded in 2022 before Russia’s invasion of Ukraine. Moreover, GDP growth of 0.3% in the second quarter of 2024 inspired minimal tailwinds:
‘With recent numbers casting doubt about service sector strength, expectations for GDP growth in the rest of the year have weakened,’ remarked ING economist Bert Colijn.
Looking ahead, a continuing lack of significant Eurozone data today may further dent the single currency. On the other hand, USD could correct lower following yesterday’s gains, potentially lending an upside to the euro.
GBP/EUR exchange rate forecast: significant data limited ahead
Following this morning’s retail report, the pound euro exchange rate has little domestic stimuli to trade upon this afternoon. Driving GBP/EUR movement may be activity in the United States.
The preliminary reading of August’s Michigan consumer sentiment index is expected to print higher than the previous month, potentially boosting the US dollar and consequently depressing the euro. If the single currency weakens, GBP/EUR could climb.
Later in the session, the Federal Reserve’s Austan Goolsbee is due to speak. Depending on whether he strikes a hawkish or a dovish tone, USD could firm or tumble, with possible implications for the euro and the GBP/EUR exchange rate.