Solid UK Retail Sales Bolstered Pound Euro Exchange Rate
Sentiment towards the Pound (GBP) turned more bullish in the wake of the UK’s October retail sales data, which markedly bettered expectations. Sales rose 7.6% on the year, indicating that consumers remained confident in spite of the persistent state of uncertainty hanging over the domestic economy. This encouraged investors to pile back into Sterling on Thursday morning, although GBP exchange rates struggled to hold onto their initial gains for long.
The Pound Euro (GBP EUR) exchange rate was dented by the confirmation that the Eurozone Consumer Price Index had ticked higher on the year in October. With inflationary pressure within the currency union strengthening, albeit at a modest pace, there is less impetus on the European Central Bank (ECB) to consider further easing measures. Although markets remain relatively confident that the central bank will announce an extension of quantitative easing in December this positive showing nevertheless boosted the Euro (EUR).
GBP EUR Exchange Rate Forecast: Pound to Weaken Ahead of Autumn Statement
With the Federal Reserve looking to be on track to raise interest rates before the end of the year pressure is likely to build on the Euro. Greater policy divergence between the Fed and ECB would diminish the appeal of the single currency, particularly as domestic political risk builds. Worries over the outcome of the Italian constitutional referendum are expected to keep the Euro on a weaker footing in the near term.
Demand for the Pound is expected to remain muted ahead of Chancellor Philip Hammond’s first Autumn Statement, with markets anticipating a more limited change in fiscal policy than had been hoped for. If Hammond fails to deliver on the level of fiscal stimulus that investors wish to see then the GBP EUR exchange rate is likely to trend lower. It seems likely that the Chancellor will not do anything particularly radical, particularly as the UK’s deficit remains decidedly wide. As Lee Hardman, currency analyst at MUFG, noted:
‘The government does not appear willing to make a more dramatic shift in fiscal policy as evident by comments from Chancellor Hammond at the Conservative Party conference when he sent a clear message that “the task of fiscal consolidation must continue”. He signalled that the government will focus on “targeted” decisions around very high value infrastructure investment.’
A less dramatic budget is expected to see the GBP EUR exchange rate soften.
Current Interbank Exchange Rates
At the time of writing, the Pound Euro (GBP EUR) exchange rate was trending in the region of 1.16, while the Euro Pound (EUR GBP) pairing was trending lower at 0.85.
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