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Pound Euro (GBP/EUR) Exchange Rate Dips as German Retail Sales Rise

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GBP/EUR Exchange Rate Falls as German Composite PMI Remains Strong

The Pound to Euro (GBP/EUR) exchange rate dipped by -0.2% this morning, with the pairing currently trading around €1.144 after Germany’s year-on-year retail sales report for January rose by 1.8%, while the monthly figure also improved by 0.9%.

Analysts at Reuters commented:

‘The figures suggest that household spending is holding up in Germany, helped by record-high employment, solid wage increases and moderate inflation, though the coronavirus epidemic could weaken domestic demand in the weeks ahead.’

Today also saw the German Markit PMI Composite gauge fall below forecasts from 51.1 to 50.7 and limit some of the single currency’s gains on a darkening economic outlook for the Eurozone.

Phil Smith, Principal Economist at IHS Markit, was downbeat in his outlook, commenting:

‘[G]iven the spread of [the coronavirus] to many other parts of the world including Germany – and the subsequent financial market reaction, it would seem that this domestic resilience is about to be broken.’

The EUR/GBP exchange rate’s gains have been restrained by rising fears that the European Central Bank (ECB) could cut its interest rates in the near-term.

Monday saw the ECB say that it ‘stands ready to adjust all its instruments, as appropriate’ in light of the global coronavirus outbreak.

GBP/EUR Exchange Rate Falls as UK Services PMI Fails to Impress

The Pound (GBP) failed to gain on the single currency after today’s UK Markit Services PMI dipped from 53.3 to 53.2.

Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, was however upbeat in his analysis:

‘The biggest driver in the UK economy put in a pleasing performance in February, retaining its growth trajectory and levels of new orders, even if some of the momentum had leaked away. With optimism at the highest levels since March 2015, businesses were also confident enough to pass on their rising costs for salaries and fuel to consumers and at the highest rate for over two years.’

Sterling traders will be keeping a close eye on the speech by the Bank of England (BoE) Governor Bailey today.

Any further signs that the BoE could increase its stimulus measures to prevent the global coronavirus outbreak impacting the British economy would prove Pound-negative.

GBP/EUR Outlook: Could Sterling Sink on Rising BoE Rate Cut Odds?

Pound (GBP) investors will be awaiting tomorrow’s speech from Mark Carney, the Governor of the BoE. Any signs of an imminent rate cut from the central bank would further weaken the GBP/EUR exchange rate.

Euro (EUR) traders, meanwhile, will be paying close attention to coronavirus developments this week. If COVID-19 cases continue to increase we could see single currency investors become increasingly jittery on the prospect for a recession for the German economy, the largest within the Eurozone.