This week the EUR/GBP pairing has put in a bit of a patchy performance, but the Pound has come out on top despite today’s disappointing retail sales report for the UK.
Although British retail sales fell by more than expected in January as wild weather kept shoppers at bay, optimism surrounding the UK’s economy recovery buoyed Sterling against its peers.
The decline in retail sales initially provoked Pound declines, but the EUR/GBP pairing went on to weaken as European trading progressed.
As currency strategist Valentin Marinov noted; ‘Retail sales are inherently volatile and the December Bounce was already expected to dampen retail-sales growth at the start of the year so the market may be discounting that. The prospect for further pronounced Sterling gains will depend on the upcoming data. If that does not improve from here, Sterling may start looking vulnerable’.
The EUR/USD pairing advanced modestly during North American trading as US existing home sales fell by more than forecast in January.
Next week the major UK news to be aware of is the nation’s preliminary fourth quarter GDP data. If the UK economy expanded at the same or a more rapid pace then in the third quarter the Pound may be boosted against the Euro on Wednesday. A surprising slowing in growth meanwhile would give the EUR/GBP pairing a chance to strengthen.
Final German growth figures are due for release on Tuesday. Preliminary figures were a positive surprise, showing unexpected expansion of 0.4 per cent in the fourth quarter. If this result is negatively revised the Euro could come under pressure.
Also of interest next week will be German unemployment figures, the German consumer confidence survey and German inflation data.
Although the EUR/GBP pairing has been given a neutral-positive bias in the short term, some investors are expecting the Pound to recover a firmer footing in the weeks ahead and for Sterling to outperform its European cousin in the long term.
The Bank of England’s new forward guidance strategy is expected to give the Pound underlying support, and although the UK’s most recent employment figures were disappointing, the UK unemployment rate is still projected to fall below 7.0 per cent in the first half of the year.
Euro Exchange Rates
|Euro||New Zealand Dollar||1.6530|
|New Zealand Dollar||Euro||0.6044|