Pound Euro (GBP/EUR) Exchange Rate Softens in Spite of UK Retail Sales Uptick
While July’s UK retail sales data proved encouraging this failed to offer the Pound Sterling to Euro (GBP/EUR) exchange rate anything in the way of support on Thursday.
Even though retail sales excluding auto fuel saw a 0.9% increase on the month, reversing the contraction seen in June, the mood towards Pound Sterling (GBP) remained generally muted.
Concerns over the outlook of the UK economy remain in spite of these solid levels of consumer spending, especially in the wake of recent wage growth data.
As sales were likely supported by the summer weather and football World Cup investors are wary of the fact that this improvement could prove short-lived in nature.
James Smith, Developed Markets Economist at ING, commented:
‘Admittedly, the fairly large magnitude of this latest increase possibly says more about the volatility of the retail sales series than anything else, but the underlying details do tally with what Visa and the British Retail Consortium have said about recent trends.
‘But now that the wind and rain are back with us, we suspect the cracks in the high street are likely to become more visible once again.’
Widened Eurozone Trade Surplus Boosts Euro (EUR) Exchange Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate also came under pressure thanks to an unexpectedly sharp widening of the Eurozone trade surplus.
Investors were surprised to find that the surplus had swelled from 16.5 billion to 22.5 billion in June, shrugging off any impact from increased global trade tensions.
This naturally fostered greater confidence in the outlook of the Eurozone economy, even though growth in the second quarter proved lacklustre.
As market worries over the Turkish financial crisis continued to ease this offered additional support to the Euro (EUR), with markets now seeing less risk of contagion spreading into the European banking sector.
Even so, until confidence in the future of the Turkish economy improves EUR exchange rates are still vulnerable to fresh pressure.
Further Pound Sterling Euro (GBP/EUR) Exchange Rate Volatility Forecast on Eurozone Inflation
Ahead of the weekend the Pound Sterling to Euro (GBP/EUR) exchange rate could extend its losses further in response to the finalised Eurozone consumer price index data for July.
Confirmation that the headline inflation rate strengthened from 2.0% to 2.1% on the year would give investors fresh incentive to pile into the Euro.
As long as inflation shows signs of picking up the case for further European Central Bank (ECB) policy tightening is likely to improve.
However, the monthly measure of inflationary pressure may prove less encouraging in nature, with forecasts pointing towards a -0.3% contraction.
If markets see risks of price pressures across the currency union remaining lacklustre in the months ahead this could offer a boost to the Pound Sterling to Euro (GBP/EUR) exchange rate.
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