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Forecast-Beating German Sales Fail to Prevent Tight Euro to Pound Trading

The Euro has fallen by -0.3% against the Pound on Friday afternoon, following a forecast-matching slowdown in Eurozone inflation.

Commenting on the result was Bert Colijn of ING;

‘The ECB is unlikely to change course early in the year, even if economic data surprises on the upside. So despite an economy that is picking up, Goldilocks is unlikely to burn her tongue on the porridge just yet’.

(First published January 5th, 2018)

Euro to Pound Exchange Rate Remains Close despite Soaring German Sales

The Euro has traded in a narrow range against the Pound (EUR/GBP) today, failing to advance due to lingering background concerns about the future of the Eurozone.

The latest Eurozone data has proven supportive, with Germany reporting higher-than-expected retail sales in November on both the month and the year.

In the Eurozone as a whole, retail activity has also increased by more than initially anticipated.

Commenting on the German ecostats, IHS Markit Principal Economist Phil Smith said;

‘The data flow out of Germany remains strongly positive, with the Retail PMI hitting an eight-month high in December to show a healthy upward trend in consumer spending.

The retail [PMI] comes [after] manufacturing, services and construction [PMIs], which showed growth accelerating [in late] 2017, setting the scene for a strong start to 2018.

Retailers can be relatively pleased with their performance, with sales growth gaining momentum and targets being met for the first time in eight months in December’.

Euro Demand Remains Low ahead of Inflation Stats

While today’s Eurozone news has generally supported the Euro, underlying trader concerns have prevented a simple Euro to Pound exchange rate rise.

The main worry is about Eurozone inflation rate figures, which will be released shortly.

The flash estimate for year-on-year inflation in December is tipped to show a reduction from 1.5% to 1.4%, which is an undesirable outcome for Euro traders.

The assumption is that if annual inflation falls then the European Central Bank (ECB) will be under less pressure to consider an interest rate hike in 2018 or beyond.

Slowing UK Car Sales Leave GBP/EUR Exchange Rate Flat

Pound traders haven’t had much to cheer about today, which has left the Pound trading tightly against the Euro and other peers such as the Australian Dollar and Danish Krone.

New car sales have been in the spotlight; these have declined annually for the first time in six years, with a lack of demand for diesel vehicles mainly fuelling the drop.

Although Mike Hawes of the Society of Motor Manufacturers and Traders (SMMT) has claimed that ‘This was the third best year in a decade’, GBP traders remain unconvinced.

Looking at a possible shift in gear for car sales in the UK, Alex Buttle of Motorway.co.uk has said;

‘As sales of new diesels continue to fall, 2017 could mark the end of one era of motoring and the dawn of a new one, as hybrid and electric sales start to take off’.

Slowing Eurozone Inflation could Cause Euro to Pound Exchange Rate Crash

The Euro remains at risk of a sharp drop in the near-term, when Eurozone-wide inflation rate figures will be announced.

If the annual reading for December does reduce as some suspect, the Euro may tumble over worries about ECB caution in the coming months.

Pound traders will have to wait until 10th January for the next major UK news, which will be a trade balance reading for November.

Expectations are for an expansion of the existing trade deficit, which could result in the Pound being devalued and falling against the Euro.