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Euro to Pound Exchange Rate Tests Quarterly Highs Again as UK Retail Sales Disappoint

Euro to Pound Exchange Rate Sustains Most Weekly Gains as Sterling Remains Weak

After seeing largely range-bound trade throughout the first half of July, the Euro to Pound Sterling (EUR/GBP) exchange rate has seen surprisingly strong gains this week amid broad Brexit concerns and underwhelming UK price pressure data.

In recent weeks, EUR/GBP has been stuck near the level of 0.8840 – but since Monday the pair has been climbing.

On Wednesday evening, EUR/GBP hit a quarterly high of 0.8928, but briefly pulled back from that high overnight.

While EUR/GBP has fallen back from its best levels due to some weakness in the Euro (EUR), the exchange rate has still sustained most of its weekly gains.

Demand for the Euro weakened slightly as investors digested the weaker than expected Eurozone core inflation results from June.

The biggest data of the week so far though was Britain’s June inflation results, which fell short of forecasts and weakened Bank of England (BoE) interest rate hike bets.

Sterling performance only worsened when Britain’s June retail sales results disappointed too, causing EUR/GBP to briefly test a new quarterly high of 0.8935.

Euro (EUR) Exchange Rates Limited as Eurozone Core Inflation Falls Short

While the Pound (GBP) has been this week’s biggest loser due to fresh Brexit jitters and a fall in Bank of England (BoE) interest rate hike bets, the Euro hasn’t been particularly appealing either.

Concerns about how US trade tariffs and the US-China trade war may damage major trade-heavy economies in the Eurozone, like Germany, have made investors hesitant to buy the shared currency too much.

On top of this, Wednesday’s Eurozone Consumer Price Index (CPI) results from June fell short of expectations in one key print.

The month-on-month and year-on-year inflation prints met forecasts, coming in at 0.1% and 2.0% respectively.

However, the yearly core figure was forecast to slip from 1.1% to 1.0% and instead slid to just 0.9%.

It indicated that underlying Eurozone price pressures were weaker than expected, and dampened market hopes for the European Central Bank (ECB) to hike Eurozone interest rates at all before the second half of 2019.

Pound (GBP) Exchange Rates Sold as Bank of England (BoE) Rate Hike Bets Lighten

The Pound outlook has worsened this week, as Brexit jitters have returned in full force and the latest UK inflation data has left investors doubting the resilience of UK price pressures.

Wednesday saw the publication of Britain’s June Consumer Price Index (CPI) inflation results, which fell short of forecasts in every major print.

Monthly inflation slowed to a stagnant 0.0% while yearly inflation remained at 2.4% rather than the forecast 2.6%.

Perhaps most concerning was the unexpected fall in core inflation, from 2.1% to 1.9% rather than climbing to the expected 2.2%. This worsened concerns about UK price pressures and led to a fall in Bank of England (BoE) interest rate hike bets.

For now, the Pound continues to feel heavy pressure from Bank of England uncertainty and lasting concerns that divisions in the UK government could scupper UK-EU Brexit negotiations and lead to a ‘no deal’ Brexit.

Euro to Pound (EUR/GBP) Forecast: Eurozone Data to Be Influential Next Week

Unless there are surprising developments in UK politics, Brexit news or US trade protectionism, the Euro to Pound (EUR/GBP) exchange rate is on track to end the week higher.

Friday will see the publication of Germany’s June PPI results and the Eurozone’s current account data from May, as well as Britain’s June public sector net borrowing results. These are unlikely to have a significant impact on EUR/GBP however.

Instead, investors will be looking ahead to next week, when a slew of Eurozone data including PMI projections and confidence stats will be published.

Eurozone confidence data will be published on Monday, followed by German business confidence data from Ifo on Wednesday and GfK’s German consumer confidence stats on Thursday. The Eurozone’s July PMI projections will come in on Tuesday.

However, the biggest news of the week will be the European Central Bank’s (ECB) July policy decision on Thursday, which could have a big impact on the Euro to Pound (EUR/GBP) exchange rate if it surprises.