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EUR GBP Exchange Rate Drops Back from Highs Thanks to UK Retail Data

  • EUR GBP Exchange Rate Holds Near 0.89 – But could slip to 0.88 if Pound strengthens
  • Pound Boosted by UK Retail Data – Despite analyst warnings over long-term outlook
  • EUR Forecast: Eurozone PMIs Next Week – As well as confidence data
  • GBP Forecast: Budget Week Ahead – Will UK Chancellor Hammond deliver good news?

The EUR GBP exchange rate has tumbled from multi-week highs in recent sessions due to a stronger-than-expected UK retail sales report, as well as a lack of fresh reasons to buy the Euro. Optimistic comments from European Central Bank (ECB) President Mario Draghi limited Euro losses on Friday.

EUR GBP began the week at the level of 0.8844 and surged when markets opened, hitting a high of 0.9009 on Wednesday. Since then the pair has slipped, but as of Friday morning remained in the region of 0.89.

Euro (EUR) Finds Little Support in Optimistic Draghi

While still ways away from the hawkish tone on monetary policy that many Euro investors wanted to hear, European Central Bank (ECB) President Mario Draghi appeared optimistic about the Eurozone’s health in a Friday speech.

He noted that the Eurozone’s economic recovery was robust and remained sounded particularly proud of how unemployment had improved throughout the bloc, calling it a ‘remarkable success story’. He said;

‘Consumption is being supported by a virtuous circle between rising labour income and rising employment. Employment in the euro area has reached its highest level ever, while unemployment has fallen to its lowest rate since January 2009.’

Still, as always there were caveats in Draghi’s speech as he flagged up the lack of price pressures in Eurozone inflation. This ultimately prevented the Euro from strengthening on Draghi’s speech.

According to Draghi;

‘We are not yet at a point where the recovery of inflation can be self-sustained without our accommodative policy. A key motor of the recovery remains the very favourable financing conditions facing firms and households, which are in turn heavily contingent on our policy measures.

An ample degree of monetary stimulus remains necessary for underlying inflation pressures to build up and support headline inflation over the medium term.’

Despite this analysts seem generally optimistic about the Eurozone economy too. Economists expect that the Eurozone will post its best growth in a decade in 2017 and will continue to grow solidly in 2018 too.

The Euro outlook is solid overall and according to Peter Vanden Houte from ING Euro hawks have a lot to look forward to;

‘If you look at forward-looking indicators…then you actually see that the expansion has momentum, which will continue into 2018, and so that is definitely good news – and it is broad-based,’

Pound (GBP) Supported by Retail Sales

Despite a lack of fresh UK data on Friday, the Pound continued to edge higher against the Euro in the morning and had recovered most of its recent losses.

This stronger Pound trend has largely been due to weakness in rivals like the US Dollar (USD), as well as Thursday’s UK retail sales report, which beat expectations in both prints.

UK retail sales were forecast to rise to 0.1% month-on-month in October but instead jumped from -0.7% to 0.3%. The yearly figure was expected to slump to -0.6% but only fell from 1.3% to -0.3%.

While economists remained concerned about the pay squeeze and Britain’s long-term retail activity outlook, this report was enough to help boost Pound demand.

After days of poor Sterling performance, investors saw the report as an opportunity to buy the British currency from its cheap levels.

It came amid high political uncertainty, as markets have been concerned about UK Prime Minister Theresa May’s domestic position as well as the lack of progress in Brexit negotiations.

EUR GBP Exchange Rate Forecast: Eurozone PMIs Ahead

The Eurozone is expected to continue to see strong growth for the remainder of 2017 and into 2018, but upcoming Eurozone PMIs from Markit could influence market expectations for how strong that growth will be.

Markit’s November PMI projections will be published on Thursday and are likely to be the week’s most influential Eurozone datasets.

German manufacturing is forecast to remain strong and slip from 60.6 to 60.3, while the overall Eurozone composite PMI is forecast to remain at a sturdy 56.

If the PMIs come in even higher than expected this is likely to limit potential Euro losses. Euro trade could also be supported by Eurozone consumer confidence and German business confidence data due throughout the week.

However, Sterling could push the EUR GBP exchange rate lower if there are notable developments in the Brexit process in the coming sessions.

Pound investors have a little more to look forward to in the coming week, as any Brexit news that develops over the weekend is likely to influence Sterling’s Monday movement.

On top of this, UK Chancellor Philip Hammond will deliver the Autumn Budget on Wednesday.

EUR GBP Interbank Rate

At the time of writing this article, the EUR GBP exchange rate trended in the region of 0.8901. The Pound to Euro exchange rate traded at around 1.1232.