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Euro Pound (EUR/GBP) Exchange Rate Drops as German Retail Sales Slump

Euro Pound exchange rate outlook

Euro Pound (EUR/GBP) Exchange Rate Slips despite Risk-Off Mood

The Euro Pound (EUR/GBP) exchange rate is falling today. Poor retail and manufacturing sector growth in the Eurozone may be pulling the currency pair lower today. Additionally, increased bets on an interest rate hike from the Bank of England (BoE) this week may also be pulling EUR/GBP lower.

At time of writing the EUR/GBP exchange rate is at around £0.8360, which is down around -0.4% from this morning’s opening figures.

Euro (EUR) Falls as Eurozone Manufacturing Sector Struggles

A risk-off mood in the markets is helping the Euro (EUR) to make gains against its riskier peers today. On the other hand, poor data releases for Germany and the Eurozone are likely pulling the single currency lower against its safer rivals.

German retail sales saw their biggest year-on-year fall since 1994 in June this year. The figures are likely contributing to the Euro’s woes today. High inflation, the war in Ukraine, and the Covid-19 pandemic were all cited as key factors for the drop. Sales contracted by -1.6% versus the forecast rise of 0.2%.

A slump to Eurozone and German manufacturing growth may also be prompting losses for the single currency today. Increased fears of an imminent recession across the trading bloc likely limited new orders at factories last month.

These fears have likely been intensified as the Eurozone struggles with the prospect of an energy shortage this winter. Gas supplies through the Nord Stream 1 gas pipeline still remain at 20% of capacity after Russian supplier Gazprom imposed restrictions last week.

Pound (GBP) Climbs amid BoE Rate Hike Bets

Increased bets on an interest rate hike from the BoE this week is helping to bolster the Pound (GBP) today. Markets are now increasingly pricing in a 0.5% increase to interest rates at the central bank’s meeting on Thursday.

In weeks prior, BoE Governor Andrew Bailey has signalled that a 0.5% rate hike was ‘on the table’ for the BoE.

Amarjot Sidhu, economist at BNP Paribas, said:

‘After the ECB and the Fed delivered oversized hikes at their July meetings, the Bank of England is likely to feel similar pressure.’

A above-forecast fall to UK factory output may be capping gains for Sterling today, however. New orders at UK factories shrank at their fastest rate since 2020 in July of this year.

EUR/GBP Exchange Rate Forecast: Will BoE Hike Rates as Forecast?

Looking to the week ahead for the Euro, a forecast drastic widening to Germany’s trade deficit could further dent confidence in the single currency on Wednesday.

Also on Wednesday, the final reading of July’s German and Eurozone PMIs may prompt a drop in EUR if figures fall as expected. A drop to Eurozone retail sales for June could have a similar effect on the same day.

Thursday’s economic bulletin from the European Central Bank (ECB) may help the Euro to stage a recovery if they point toward a path of more rate hikes.

For the Pound, the final reading of July’s services PMI Tuesday could see the currency edge lower if the index falls as forecast. Markets will be most keenly awaiting the BoE’s interest rate decision on Thursday, however. A 0.5% interest rate hike could see a slight uptick to Sterling. On the other hand, the impact of the decision could be limited given that markets have largely priced in the move.