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Pound Euro Exchange Rate to Climb on Rebounding UK Economy?

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GBP/EUR Exchange Rate Wavers amid Strong UK Retail Sales

The Pound Euro (GBP/EUR) exchange rate is trading narrowly as retail sales in the UK rose 4.9% YoY in March. Retail sales in the Eurozone however, fell 3.0% YoY.

At time of writing the GBP/EUR exchange rate is around €1.1403, relatively unchanged from this morning’s levels.

Pound (GBP) Supported by Better-than-Expected Retail Sales

The Pound (GBP) is enjoying renewed strength against most of its peers this morning in the wake of strong retail sales. The British Retail Consortium (BRC) revealed that sales on a like-for-like basis improved by 4.9% YoY, unchanged from February’s figure.

The figure came in better than market expectations as surprisingly robust retail sales figures belied the cost-of-living crisis. Helen Dickinson, Chief Executive at BRC, commented on the latest figures:

‘While the wettest March in over forty years dampened sales growth for fashion, gardening and DIY products, Mother’s Day brightened up sales for the month.’

Further providing some support to Sterling, is welcome news from the International Monetary Fund (IMF). Interest rates are set to fall back down to ultra-low levels once the BoE tames inflation, according to the IMF.

Looking ahead, GDP growth rate could boost GBP investors as economic growth MoM is expected to improve by 0.1%. Despite the modest improvement, a second consecutive month of strengthening economic growth could rally the Pound.

Euro (EUR) Undermined by Subdued Retail Demand

Meanwhile, the Euro (EUR) struggled for a clear direction as retail sales dropping back into contraction territory, but the yearly figure printed better than expected.

On a monthly basis, retail sales fell by 0.8% as expected, with a modest improvement in the yearly figures. A predicted 3.5% fall YoY, the March figure came in at 3.0%. The better-than-expected retail figures helped stem the losses for the Euro amid a subdued demand in the retail sector.

Meanwhile, investor confidence in the Eurozone improved in April after dipping the previous month. The latest survey from Sentix revealed that confidence climbed to the highest level in over a year, as a myriad of economic headwinds began to ease. Sentix commented:

‘There is no doubt that the euro zone economy has weathered the winter months better than many feared in the fall.’

Looking ahead, the Euro could see some movement with the release of inflation figures for both Germany and France. Used as an early indicator for the wider Euro area, a continued fall in CPI could pare rate hike bets, softening the Euro.

Elsewhere, an expected improvement in industrial production in the Eurozone could boost the single currency. A 1% improvement MoM could point to an improving factory sector.

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