Disappointing Retail Sales Weigh on Pound Sterling Euro (GBP/EUR) Exchange Rate
The Pound Sterling to Euro (GBP/EUR) exchange rate fell into a fresh slump on Tuesday morning in the wake of a disappointing British Retail Consortium (BRC) like-for-like sales reading.
After a sharp drop in May the index continued to decline in June, contracting -1.6% on the year as consumer sentiment remained muted in the face of ongoing Brexit-based uncertainty.
This persistent weakness in retail sales left investors with little reason to favour Pound Sterling (GBP), given other recent signs of a slowdown across the UK economy.
With retail sales failing to pick up at the end of the second quarter the odds of a weaker gross domestic product reading increased, to the detriment of GBP exchange rates.
As any imminent sense of clarity over Brexit appears unlikely the Pound looks set to remain biased to the downside in the near future.
GBP/EUR Exchange Rate Looks for Boost on Improved Monthly UK Gross Domestic Product
However, the mood of GBP exchange rates could improve on Wednesday if May’s monthly gross domestic product proves encouraging.
Forecasts point towards growth rebounding to 0.3% on the month, shaking off the disruption of political anxiety and Brexit speculation.
This would reduce the risk of a second quarter contraction, even in the wake of June’s underwhelming set of UK PMIs.
However, if growth fails to pick up on the month as anticipated this could leave the GBP/EUR exchange rate exposed to a fresh bout of selling pressure.
Any fresh evidence that the UK economy struggled to hold onto its previous growth momentum in the second quarter may weigh heavily on Pound Sterling.
Even so, as investors anticipate a positive showing from the latest raft of UK industrial and manufacturing production figures this could put a temporary floor under GBP exchange rates.
Dovish ECB Minutes Forecast to Limit Euro (EUR) Appeal
Demand for the Euro (EUR), meanwhile, may diminish ahead of the publication of June’s set of European Central Bank (ECB) meeting minutes on Thursday.
Markets expect to see a relatively dovish message from ECB policymakers, highlighting the potential for monetary policy to loosen before the end of the year.
As long as the central bank appears to remain on course to cut interest rates in the months ahead this is likely to leave the single currency on a generally weaker footing against its rivals.
If policymakers express fresh concern over the outlook of the Eurozone economy this could offer the GBP/EUR exchange rate an additional boost.
Confirmation that the German consumer price index picked up in June is unlikely to give the Euro any particular cause for confidence, meanwhile.
Unless the ECB sees signs of a sustained uptrend in inflationary pressure the odds of a 2019 interest rate cut are unlikely to ease, limiting the potential for EUR exchange rate gains.