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Pound Euro Exchange Rate to Tumble on Gloomy UK Economic Outlook?

Pound coin on a Euro banknote

GBP/EUR Exchange Rate Firms after UK Retail Sales Recover

The Pound Euro (GBP/EUR) exchange rate is strengthening today as UK retail sales print better than expected.

At time of writing the GBP/EUR exchange rate is around €1.1493, a 0.44% jump from this morning’s opening levels.

Pound (GBP) Buoyed by Retail Rebound

The Pound is enjoying renewed strength this morning despite the darkening economic landscape. A rebound in retail sales is lending considerable support to Sterling.

Sales in the retail sector leapt by 0.6% for the month of October, beating out expectations of a 0.3% climb. The strongest increase in 2022, the climb in retail sales was only the second jump this year. Despite a welcome bounce, compared to this time last year, sales were still 6.1% lower. Further concerning, is that retail sales are still 0.6% lower than pre-pandemic levels. A small improvement in consumer confidence, the second consecutive month of increase, lends some modest support to Sterling.

However, a modest jump in retail sales hides a concerning underlying issue. Sales volumes continue to slump, as they contracted more than 2.4% over the last three months. The Office for National Statistics (ONS) warns that it continues the downward trend since summer 2021 as inflationary pressure continue to take their toll.

Looking ahead, the Pound could see further movement with a speech from BoE Monetary Policy Member Jonathan Haskel. The talk is expected to be on fiscal policy, and comments on the autumn statement could sway investors.

As for next week, GBP investors will be looking towards flash PMIs for services and manufacturing. The reading for November is expected to show a downturn across both sectors, which could drag Sterling down.

Euro (EUR) Undermined by Risk-Off Market Mood

Meanwhile, the Euro is under pressure this morning as a lack of major data leaves the single currency exposed to market sentiment.

European Central Bank (ECB) President Christine Lagarde gave a speech, but a mixed message left investors in the lurch. Confirmation that the central bank will continue to raise interest rates to prevent inflation becoming embedded. However, Lagarde also warns of a looming recession, and an expected severe downturn in the Eurozone economy could be weighing on the single currency.

Looking ahead to next week’s session, German PPI data could influence the Euro and their subsequent rate hikes. PMI data is set to follow on Wednesday, and an expected slowdown in both Germany and the Eurozone could see the Euro slip.

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