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Pound Euro (GBP/EUR) Exchange Rate Struggles to Capitalise on Latest Decline in German Consumer Confidence

Euro Currency Forecast

Negative German Consumer Sentiment Fails to Shore up Pound Euro (GBP/EUR) Exchange Rate

As the German GfK consumer confidence index weakened further than forecast in November this helped to limit the downside potential of the Pound to Euro (GBP/EUR) exchange rate.

With the index dipping from -1.7 to -3.1 this suggests that the Eurozone’s powerhouse economy is set to come under increasing pressure in the months ahead.

This lack of optimism over the economic outlook put some pressure on the Euro (EUR), with investors already betting that the Eurozone economy will require further support.

The increasing case for additional policy action from the European Central Bank (ECB) looks set to weigh on the single currency in the near term, especially as Covid-19 restrictions continue to drag on domestic activity.

Even so, Pound Sterling (GBP) struggled to capitalise on the softness of its rival as Wednesday’s bout of confidence in a potential UK-EU trade breakthrough started to fade.

Uptick in UK Consumer Confidence May Lift Pound Appeal

The mood towards the Pound could see a fresh improvement on Friday, though, if the GfK consumer confidence shows an uptick on the month.

If sentiment in October strengthened in the UK this may give GBP exchange rates another rallying point, with stronger confidence likely to translate into greater economic activity.

On the other hand, should the index slip deeper into negative territory this could expose the GBP/EUR exchange rate to another bout of selling pressure.

Support for the Pound could equally weaken if September’s UK retail sales figures fail to impress.

With growth in monthly retail sales looking set to soften slightly from 0.8% to 0.4%, evidence of increased caution among consumers may weigh on the Pound.

As stronger levels of consumer spending have previously helped to shore up the UK economy during periods of weakness any greater deterioration in spending could dent the GBP/EUR exchange rate.

Underwhelming Eurozone Services PMI Forecast to Weigh on Euro

However, the appeal of the Euro may continue to fade ahead of the weekend as markets anticipate another lacklustre Eurozone services PMI reading.

As the PMI looks set to remain in a state of contraction, slipping from 48 to 47 in October, confidence in the currency union’s economy outlook could falter.

Evidence that the service sector remained on the back foot at the start of the fourth quarter would not bode well for the odds of a stronger quarterly growth rate, especially not in the face of ongoing Covid-19 concerns.

Even so, the impact of a weaker services PMI may still be offset by signs of greater resilience within the corresponding manufacturing PMI.

As long as manufacturing activity across the Eurozone shows signs of holding up and recovering the momentum lost during the initial Covid-19 crisis this could lift the Euro higher across the board.