Stronger UK Retail Sales Fail to Shore up Pound Sterling Euro (GBP/EUR) Exchange Rate
A better-than-expected improvement in November’s CBI reported retail sales index failed to shore up Pound Sterling (GBP) on Tuesday morning.
Although the headline index picked up sharply from 5 to 19 on the month the underlying details of the report were less positive in nature.
As retailers expect the overall business situation to deteriorate over the next three months the UK economy looks set to remain under pressure, even after the Christmas sales boost.
This added to the bearish mood of GBP exchange rates, with Brexit developments continuing to weigh heavily on demand for the Pound.
After the US indicated disapproval of the proposed Brexit deal the chances of Theresa May getting the agreement through Parliament appeared to diminish further.
Investors remain anxious over the shape of the UK’s future trading relationships, keeping the Pound Sterling to Euro (GBP/EUR) exchange rate on the back foot.
GBP/EUR Exchange Rate to Remain Under Pressure Thanks to Brexit Uncertainty
Speculation over Brexit is likely to continue dominating the outlook of GBP exchange rates in the days ahead, limiting the potential for a Pound rally.
With backing for Theresa May’s plan still rather limited the threat of a no-deal Brexit and further political turmoil still hangs over Pound Sterling.
James Rossiter, Senior Global Strategist at TD Securities, noted:
‘We continue to believe that there is a 75% chance of a deal being agreed by end-March. However, in getting there, confidence votes, PM resignations, elections, and announcement of a new referendum are all possible.’
Until investors see greater clarity over the shape of Brexit and a less volatile UK political landscape the Pound may struggle to find any particular support against its rivals.
However, a stronger showing from Thursday’s UK net consumer credit and mortgage approvals figures could give the GBP/EUR exchange rate a boost.
While increased household debt could discourage Bank of England (BoE) policymakers an uptick would still point towards a greater sense of confidence within the domestic economy.
Disappointing Eurozone Inflation to Weigh on Euro (EUR) Exchange Rates
Demand for the Euro (EUR) may weaken in the wake of November’s German and Eurozone consumer price index data.
Forecasts point towards an easing in inflationary pressure on the year, something which could discourage the European Central Bank (ECB) from taking a more hawkish policy outlook.
Investors expect to see the headline Eurozone CPI dip from 2.2% to 2.0% in November, falling back in line with the ECB’s inflation rate target.
This would give policymakers less incentive to consider raising interest rates in the months ahead, diminishing the appeal of the single currency.
On the other hand, if inflation shows a fresh acceleration in November this could see the Pound Sterling to Euro (GBP/EUR) exchange rate extending its losses further.