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Pound Euro Exchange Rate to Boost on Strong UK Retail Sales?

Pound coin on a Euro banknote

GBP/EUR Exchange Rate Weakens amid Hawkish ECB

The Pound Euro (GBP/EUR) exchange rate is souring as European Central Bank (ECB) President Christine Lagarde confirmed the central bank will maintain its rate hike course.

At time of writing the GBP/EUR exchange rate is around €1.1390, a 0.38% fall from this morning.

Euro (EUR) Buoyed by Increased Hike Rate Bets

The Euro (EUR) is supported by a chorus of hawkish comments from ECB policymakers. The latest speech from ECB President Christine Lagarde has bolstered expectations of the central bank to continue its monetary policy path.

Admitting that inflation in the Eurozone remains ‘way too high’, Lagarde provided some modest optimism for 2023. Lagarde said that she was pleased with the improving signs that the Euro area economy has been showing. She added:

‘There is determination at the ECB to bring (inflation) back in a timely manner and we should stay the course until we have been in restrictive territory for long enough to bring it down.’

Looking ahead, the Euro could see further movement with several speeches from ECB policymakers tomorrow. German PPI figures could show that inflationary pressures are beginning to ease, marking the third consecutive month of declining prices.

Pound (GBP) Undermined by Relentless Domestic Headwinds

Meanwhile, the Pound is struggling against its stronger peers on Thursday amid a lack of economic data. Domestic woes returned to the foreground, pulling Sterling lower on ever-lingering economic concerns.

The cost of mounting industrial action on the UK economy is starting to materialise. Huw Merriman, Rail Minister, has revealed that the rail strikes have cost the UK £1bn. When asked if settling would have been cheaper, Merriman conceded:

‘If you look at it in that particular lens, then absolutely, it’s actually ended up costing more than would have been the case if it was just settled.’

Looking ahead, strong retail sales could provide a much-needed boost for Sterling. With an expected improvement over the 0.4% slump in sales for November, sales over the Christmas period are expected to jump by 0.5%. A winter World Cup and a cold snap could have contributed to the improvement.

However, despite the expected improvement, retail sales are still expected to have slumped during Q4 for the sixth straight month. The Gfk consumer confidence survey will also be released. Even if a predicted third month of improvement is met, the level remains close to historic lows, highlighting the prolonged cost-of-living crisis weighing on the UK.

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