Stronger UK Retail Sales Boost Pound Sterling Euro (GBP/EUR) Exchange Rate
The Pound Sterling to Euro (GBP/EUR) exchange rate surged higher on Thursday as markets capitalised on better-than-expected UK retail sales data.
While forecasts had pointed towards sales contracting -0.2% on the month retail sales instead showed growth of 0.2%, suggesting resilient consumer spending.
With UK consumers appearing to have largely shrugged off political concerns and worries over a potential no-deal Brexit the mood towards Pound Sterling (GBP) naturally improved.
Although this growth was largely fuelled by an increase in online sales, raising concerns over the health of the UK high street, this still helped GBP exchange rates climb higher across the board.
Political developments failed to weigh on the Pound, meanwhile, as MPs continued their attempts to prevent the UK crashing out of the EU without a deal at the end of October.
Euro (EUR) Remains out of Favour as German Recession Fears Persist
Support for the Euro (EUR) remained generally limited in the wake of the recent German gross domestic product report.
As global trade tensions showed fresh signs of escalation, with the US and China remaining at odds, fears of a potential recession continued to mount.
The single currency could fall further out of favour on Friday if the Eurozone trade surplus narrows as anticipated.
Fresh evidence that Eurozone trade faltered at the end of the second quarter would leave EUR exchange rates vulnerable to another bout of selling pressure.
On the other hand, if trade shows signs of resilience this could encourage investors to buy back into the weakened Euro in the short term.
Anxiety over the future of the Italian government may also put a dampener on the single currency in the days ahead, with the coalition looking fragile thanks to a failed attempt to call a fresh election.
Lack of Brexit Breakthrough May Limit GBP/EUR Exchange Rate Volatility
While any political breakthrough regarding Brexit appears unlikely in the near term the GBP/EUR exchange rate could remain on a positive footing.
Unless markets see the odds shift further towards a no-deal Brexit scenario the downside potential of the Pound may prove limited.
As investors have already priced in a high risk of the UK crashing out of the EU without a deal selling pressure on GBP exchange rates is unlikely to pick up sharply before Parliament returns from its summer recess.
However, if support for a no-confidence vote in Boris Johnson gathers steam this may see the Pound recovering further ground against its rivals.
The GBP/EUR exchange rate could return to a weaker footing next week, though, if the CBI industrial trends index fails to pick up on the month.
Another negative reading from the survey, after the -34 seen in July, would reignite anxiety over the future of the UK economy.
As long as markets see a risk of the UK falling into recession in the coming quarter the GBP/EUR exchange rate is likely to soften.