Pound Sterling Euro (GBP/EUR) Exchange Rate Climbs as UK Retail Sales Improve
An unexpectedly large increase in UK retail sales helped to push the Pound Sterling to Euro (GBP/EUR) exchange rate higher on Thursday morning.
Higher levels of consumer spending fuelled greater confidence in the outlook of the UK economy, even in the wake of weaker wage growth data, to the benefit of Pound Sterling (GBP).
However, the underlying details of the sales data were not quite as encouraging as investors had hoped.
As James Smith, Developed Markets Economist at ING, commented:
‘We don’t think retailers are out of the woods just yet. May was a consistently warm month for much of the UK, particularly over the Bank holiday weekend at the start of the month, which encouraged consumers to head to the shops.
‘Consumer confidence has picked up slightly but remains low by historical standards, particularly when compared to Europe and the US, where in many cases shoppers are the most optimistic they’ve been since the early-2000s.’
GBP/EUR Exchange Rate Volatility Forecast on ECB Announcement Today
As markets braced for the European Central Bank’s (ECB) June policy announcement this offered some additional support to the Pound Sterling to Euro (GBP/EUR) exchange rate.
While investors are hopeful that the ECB will offer some indication that it is preparing to bring its long-running quantitative easing programme to an end this was not enough to keep the Euro (EUR) on a stronger footing.
The relative weakness of recent Eurozone data is likely to give ECB policymakers some cause for pause, with the currency union’s economy having shown little signs of rebounding in the second quarter.
If ECB President Mario Draghi opts for a less optimistic tone in comments to the press this could prompt EUR exchange rates to slump sharply.
A lack of indication over the likely end point of quantitative easing would give investors fresh incentive to sell out of the Euro.
Pound Sterling Euro (GBP/EUR) Exchange Rate Vulnerable Ahead of BoE Meeting
Ahead of next week’s Bank of England (BoE) policy meeting the Pound Sterling to Euro (GBP/EUR) exchange rate looks vulnerable to downside pressure, though.
Although there is no expectation for the BoE to make a move at this juncture investors are still keen to assess the outlook of policymakers.
If the meeting raises the odds of an August interest rate hike this is likely to encourage the Pound to climb higher across the board.
However, any indication that the disappointment of recent wage and inflation data has dented the confidence of the BoE could weigh heavily on GBP exchange rates.
Uncertainty over Brexit also continues to hang over the BoE outlook, especially as negotiators remain at odds ahead of the important EU summit at the end of the month.
A dovish performance from the BoE could well drive the Pound Sterling to Euro (GBP/EUR) exchange rate lower.
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