The Euro Pound (EUR GBP) exchange rate plummeted this morning following the release of the UK’s latest Retail Sales figures.
The Office for National Statistics (ONS) reported that sales grew 1.4% in February, reversing two months of decline as they rose from -0.5%, outpacing expectations that sales would only rise to 0.4%.
However economists were quick to note that sales still saw their largest three-month decline since 2010.
Kate Davies, senior statistician at the ONS, said;
‘February’s retail sales figures show fairly strong growth, though the underlying three-month picture shows falling sales as February’s figures follow two consecutive months of decline in December and January.’
The jump caught most analysts by surprise as they predicted that rising prices following the devaluation of the Pound and anaemic wage growth would curb consumer spending this year.
Despite the jump economists still predict that the recent downturn will weigh on first quarter growth this year unless March’s data reports an unseasonably high increase in consumer activity.
The data is seen as a key indicator for Bank of England (BoE) policymakers for gauging the state of the UK’s economy, with a drop in consumer spending likely to cause the Bank’s outlook to remain dovish.
Meanwhile the Euro was weakened as data showed that sentiment in the Eurozone has begun to dip
Data compiled by market research institute GfK shows that Germany’s Consumer Confidence fell from 10.0 to 9.8 for April, its lowest level in four-months.
The slump was largely prompted by the recent rise in inflation across the Eurozone, which combined with falling wage expectations caused concerns that household finances may not extend as far as hoped.
However analysts predict that optimism will quickly return in the months to come as the recent downturn in oil prices will likely see the inflation rate weaken.
In its report GfK said;
‘GfK forecasts that there is light at the end of the tunnel for the current minor blip in the consumer climate, if the inflation rate is to fall again due to the current decline in crude oil prices.’
There was a similar downturn in French Business Confidence in March as a survey of manufacturers found that sentiment unexpectedly fell from 107 to a four-month low of 104.
The data suggests that the uncertainty that surrounds the French presidential election has begun to weigh on the nation’s industrial sector.
Business leaders fear that France could face the possibility of a Brexit style split from the EU, should far-right candidate Marine Le Pen claim victory in May’s presidential run-off as she vows to hold a referendum on France’s membership.
Looking ahead the Euro may cede further ground tomorrow following the release of Germany’s latest Manufacturing PMI, with economists predicting that industrial activity in Europe largest economy may fall from 56.8 to 56.5 in March.
Meanwhile the Pound may struggle to advance as GBP investors brace for Prime Minister Theresa May to trigger Article 50 on Wednesday, with markets fear the uncertainty that the two years of ensuing negotiations will place on the Pound.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.86 and the GBP EUR exchange rate was trending around 1.16.