- UK Retail Sales Disappoint – British data largely underwhelming
- Queen Celebrates 90th Birthday – UK sentiment buoys Pound (GBP)
- ECB Holds Rates – President Draghi confident, but hints at cuts
- Forecast: Eurozone PMI Due Friday – Data week ends with Eurozone in focus
The Pound Sterling to Euro (GBP/EUR) exchange rate fluctuated hugely throughout Thursday’s session, with both currencies receiving mixed messages from investors following a bullish Pound on poor UK data and a bearish Euro on solid Eurozone data.
GBP/EUR has sustained gains thus far this week, briefly hitting a 3-week-high of 1.2721 on Thursday afternoon. At the time of writing, the pair struggled to lock-in any inspired direction, and was trading narrowly in the region of 1.2695.
Tata Steel Optimism and Queen’s Birthday Offsets Disappointing Data
A surprising whirlwind of news hit the UK today, distracting investors from the week’s underwhelming datasets. Following Wednesday’s lower-than-expected wage growth data, retail sales released below forecasts today.
Retail sales were down -1.6% from February’s -0.3%, despite being projected to come in at -0.3% again. The year-on-year print came in at a disappointing 1.8%, well below forecasts that March 2015’s 3.7% would be beaten by 3.8%.
Public sector borrowing data printed better than analyst consensus’ however, at £4.165b. Despite this, it still missed UK Chancellor George Osborne’s borrowing targets, according to the BBC, in news that would be considered bad for the Treasury.
The poor data week was countered by Thursday’s news headlines, including Britain’s celebrations of her majesty the Queen’s 90th Birthday, an event which is likely to have bolstered sentiment towards the UK and its currency.
Britain’s recent steel crisis may also be winding to a positive conclusion following news that the UK’s government would be willing to pay as much as a 25% stake in any potential buyouts of Tata Steel, BBC reports. According to the report, the government would not control the business on any level if a sale goes through. Some buyers have already expressed interest.
Lastly, ‘Brexit’ bets continue to dip and concerned investors return to the weathered Pound after a slew of polls released this week indicated the vote to ‘Leave’ in June would be low, with one poll reported by Bloomberg claiming ‘Brexit’ chances are as low as 20%.
European Central Bank (ECB) Rates Frozen, Investors Adjust
The European Central Bank (ECB) met this afternoon to announce its latest key rate decision – and its first since March’s shocking easing measures were announced by ECB President Mario Draghi.
Draghi took to the stage after the meeting as per usual to deliver a press conference, in which he adopted a generally dovish tone but insisted the central bank was taking the right path to ensure Eurozone recovery.
He also championed the independence of the ECB and defended it from recent critics, such as Germany’s finance minister. As summarised by The Guardian;
‘And Draghi then takes another jab at his critics…
“By the way, I would urge all the actors in this sector to blame low interest rates for the cause of everything that has gone wrong in this sector.”
The US had low interest rate for much longer than Europe, he adds, without the same problems as in Europe.
And real interest rates (adjusted for inflation) have been lower in the past.’
Included in the questions asked to Draghi were queries about future rate cuts, to which he defended negative interest rates and asserted that they hadn’t had harmful effects. ‘Helicopter money’ was also brought up, and the ECB President clarified for markets that the central bank had never officially discussed the concept.
Eurozone consumer confidence was also revealed to have improved beyond expectations on Thursday afternoon, giving the Euro (EUR) further support.
Pound to Euro (GBP/EUR) Exchange Rate Forecast: German, Eurozone PMI Releases Tomorrow Morning
Sterling’s surprising advances this week have left GBP/EUR in an interesting position, as GBP looks to end the week’s session well above opening levels, but a less-dovish-than-feared ECB may encourage investors to react naturally to this week’s solid data releases.
Tuesday saw a bullish ZEW survey release, with economic sentiment up to 21.5. Coupled with today’s consumer confidence improving, the Euro seems set to gain on the hope of economic improvement.
Investors are more likely to react following tomorrow morning’s Eurozone datasets, which include Manufacturing, Services and Composite PMI for both Germany and the general Eurozone.
While these are April’s preliminary figures, they are likely to indicate the health of the Eurozone’s work sectors and could serve as the last push the Euro needs to recover against the Pound this week.
UK data is comparatively quiet, with the EU referendum’s ‘Remain’ and ‘Leave’ campaigns nearing the end of their first full week and ‘Brexit’ bets currently down.
The Pound Sterling to Euro (GBP/EUR) exchange rate currently trends in the region of 1.2695, while the Euro to Pound Sterling (EUR/GBP) exchange rate trends around 0.7876.
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