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Pound Euro (GBP/EUR) Exchange Rate Recovers Footing as UK Retail Sales Improve

Pound Sterling Currency Forecast

Modest UK Retail Sales Uptick Offers Pound Euro (GBP/EUR) Exchange Rate Encouragement

While February’s CBI reported retail sales index failed to pick up as far as forecast this was not enough to prevent the Pound Sterling to Euro (GBP/EUR) exchange rate from recovering some of its lost ground.

As the index still showed a modest improvement on the month, climbing from 0 to 1, this still pointed towards an improvement in UK consumer sentiment.

With retail sales looking set to pick up over the course of the first quarter the downside potential of Pound Sterling (GBP) temporarily eased.

Even so, with the UK and EU gearing up for their next phase of trade negotiations GBP exchange rates could struggle to hold onto any positive footing for long.

The lingering risk of the Brexit transition period ending without any fresh trade agreement looks set to keep the Pound in check for the foreseeable future.

Lacklustre German Growth Report Casts Shadow Over Euro

Germany’s finalised fourth quarter gross domestic product report put pressure on the Euro (EUR), meanwhile, as worries over the economic outlook continued to mount.

Investors saw little cause for confidence in the growth report, which confirmed that the Eurozone’s powerhouse economy ground to a halt in the final three months of 2019.

As the impact of the Covid-19 outbreak and deteriorating global trade tensions are still yet to be felt in the official data the prospect of a further slowdown remains.

This left the single currency on the back foot against its rivals, in spite of recent signs of confidence in German business sentiment surveys.

Demand for the Euro could weaken further on Thursday if February’s Eurozone business confidence index weakens as forecast.

Unless business sentiment shows signs of greater resilience in the face of deteriorating global trade conditions the single currency looks set to fall further out of favour.

UK-EU Trade Anxiety Set to Weigh on GBP/EUR Exchange Rate Outlook

Uncertainty surrounding the future relationship between the UK and EU looks set to limit the potential for further GBP/EUR exchange rate gains for the foreseeable future.

If the two sides appear on course to remain at odds over key issues the threat of the transition period ending without a deal is likely to increase, to the detriment of the Pound.

Even so, GBP exchange rates could find a temporary rallying point ahead of the weekend if the GfK consumer confidence index shows an improvement in its February reading.

Markets expect to see a modest uptick from -9 to -8 on the month, suggesting that some degree of confidence is filtering back into the economy.

As long as consumers show an increasing willingness to shrug off economic uncertainty this should limit the risk of any GBP/EUR exchange rate losses.