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Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: Disappointing German Retail Sales Weigh on Single Currency

With UK Consumer Confidence unexpectedly rising and German Retail Sales printing lower than forecast the Euro to Pound Sterling (EUR/GBP) exchange rate has slumped on Friday morning.

Euro to Pound Sterling (EUR/GBP) Exchange Rate Trended Lower as UK GDP Met Forecast

Although the latest UK GDP report showed that growth in the domestic economy had slowed from 2.1% to 1.9% on the year in the fourth quarter the Pound (GBP) nevertheless made some fresh gains against rivals yesterday. Largely this was driven by the modest uptick in growth evidenced on the quarter, which accelerated from 0.4% to 0.5% at the end of the year in spite of increased global downside risks, suggesting that the UK’s economic health remains relatively robust.

While the Euro (EUR) was initially shored up by the revelation that the German Consumer Price Index had strengthened further than expected in January this ultimately failed to keep the single currency on a stronger footing. Though inflationary pressure in the Eurozone’s powerhouse economy climbed from 0.3% to 0.5% the common currency was prevented from capitalising on this stronger showing by the day’s sustained market rally. With hopes of a production cutting deal between Russia and OPEC the price of oil leaped, pulling trader confidence and global stock markets up with it. As a result, with safe-haven demand diminished, the Euro to Pound Sterling (EUR/GBP) exchange rate was generally softened.

Stronger UK Consumer Confidence Bolsters Pound Sterling (GBP) Exchange Rate

Sterling was shored up further today by the revelation that the GfK Consumer Confidence Survey had unexpectedly strengthened, suggesting that the mood amongst consumers was not so grim as anticipated despite a more turbulent start to the year. As Prime Minister David Cameron is also said to be closing in on a potential deal with the European Commission in his renegotiations for the UK’s place in the European Union traders have been a little more inclined to favour the Pound this morning. Should Cameron secure a solid deal on the matter of EU migrant in-work benefits some of the uncertainty surrounding the ‘Brexit’ issue is likely to decline, to the benefit of the ailing British currency.

Demand for the common currency has continued to retreat, meanwhile, after German Retail Sales were found to have slowed further than forecast. Sliding from 2.4% to 1.5% on the year in December this weaker showing indicated that domestic sentiment had softened, a particularly worrying sign for the Christmas retail season.

EUR/GBP Exchange Rate Forecast: BoE Rate Decision Predicted to Weigh on Pound Outlook

Some measure of volatility should be expected for the Pound ahead of next week’s Bank of England (BoE) interest rate decision. Although policymakers are not expected to signal any particular changes in sentiment from the January meeting investors will still be keen to gauge the relative dovishness of the Monetary Policy Committee (MPC). Should policymakers indicate that a move on interest rates is likely to come a little sooner than markets currently expect the EUR/GBP exchange rate may be prompted to trend lower.

Current EUR, GBP Exchange Rates

At the time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was on a downtrend at 0.7604, while the Pound Sterling to Euro (GBP/EUR) pairing was making gains around 1.3152.