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GBP EUR Exchange Rate Edges Higher on Strong UK Retail Data

  • GBP EUR Exchange Rate Near 1.12 – Pair still well below Monday’s 1.13 level
  • UK Retail Sales Beat Expectations – Eurozone inflation meets forecasts
  • GBP Forecast: UK Public Sector Net Borrowing Ahead – UK growth data next week
  • EUR Forecast: Draghi Speech on Friday – Markit’s November PMIs next Thursday

Some better-than-expected UK retail sales stats on Thursday slightly boosted the GBP EUR exchange rate, following days of underwhelming ecostats causing concern about the UK economic outlook. Demand for the Euro has been solid this week amid strong Eurozone growth data.

GBP EUR has recovered slightly from its worst levels though. After opening the week at 1.1306, GBP EUR hit its worst level in almost a month on Wednesday, 1.1099, before recovering slightly and trending nearer the level of 1.12.

Pound (GBP) Avoids Further Losses on UK Retail Report

After some underwhelming UK inflation and job market data in recent sessions, investors were finally given a break from bad news about the UK economy on Thursday when the October UK retail sales report was published.

UK retail sales were forecast to improve from -0.8% to 0.1% month-on-month and drop from 1.2% to -0.6% year-on-year.

However, the previous figures were revised higher to -0.7% month-on-month and to 1.3% year-on-year while the October stats came in at better-than-expected 0.3% and -0.3% respectively.

According to the report from the Office for National Statistics (ONS), the higher than expected sales were due to higher than normal demand for second-hand goods such as antiques and art. According to Kate Davies, senior statistician from the ONS;

We are continuing to see an underlying picture of steady growth in retail sales, although this October suffered in comparison with a very strong October in 2016.

Growth month-on-month in October was particularly strong in the second-hand goods sector, which includes auction houses and antique dealers.

However, Sterling’s gains from the report were limited due to the week’s other underwhelming data, as well as forecasts from economists that Britain’s retail outlook was still filled with uncertainties.

IHS Markit chief economist Chris Williamson, for example, believes that while there is a chance that the pay squeeze could begin to lighten in the coming months, uncertain job market trends could complicate things;

‘News of a softening labour market may lead to increased job insecurity and cause some pull-back in consumer spending, especially if Brexit uncertainty intensifies. Faster pay growth is also by no means assured, as there have been many false dawns in this respect in recent years, and inflation looks set to remain above 2% for some time to come.

On balance, therefore, outlook for the retail sector remains highly uncertain, and risks to the downside suggest that sales may come under further pressure in the near-term.’

Euro (EUR) Strength Limited as Eurozone Inflation Slows as Forecast

Eurozone data published in recent sessions has been relatively strong and has reminded investors that the Eurozone’s growth recovery outlook is currently highly positive.

German and Italian growth projections beat forecasts which bolstered expectations that the Eurozone’s Q3 growth will meet projections of coming in at a solid 0.6% quarter-on-quarter and a strong 2.5% year-on-year.

However, other recent Eurozone data has simply reminded investors that despite strengthening economic growth across the bloc, the European Central Bank (ECB) was still likely to leave monetary policy frozen for some time.

On Thursday, the Eurozone’s final October Consumer Price Index (CPI) results were published. Inflation slipped from 0.4% to 0.1% month-on-month as forecast, while the yearly figure met projections and slowed from 1.5% to 1.4%.

Eurozone core inflation slowed from 1.1% to 0.9% as forecast too. Overall, the results were stronger evidence that the ECB was correct to forecast much slower inflation in 2018.

With Eurozone inflation expected to slow further in the coming months, the ECB is unlikely to take a more hawkish tone on interest rates within the foreseeable future.

This made it easier for GBP EUR to recover slightly on Thursday.

GBP EUR Exchange Rate Forecast: UK Borrowing Stats on Friday

Recent UK data has not really given much support to the overall Pound outlook, but ahead of UK Chancellor Philip Hammond’s Budget speech next week Friday’s data could still influence Sterling slightly.

Friday will see the publication of Britain’s October public sector net borrowing data. If the results beat expectations it will indicate that Hammond may have slightly more leeway during the Budget speech. This could cause the Pound to advance.

If the data is disappointing or largely unsurprising however, GBP EUR is likely to end the week around a cent below its opening levels.

As for the Euro, European Central Bank (ECB) President Mario Draghi will hold a speech on Friday which could have an impact on shared currency trade.

If not though, GBP EUR exchange rate traders are likely to await next week’s UK data, Budget speech and Eurozone PMIs for November before making new major moves on the pair.

GBP EUR Interbank Rate

At the time of writing this article, the GBP EUR exchange rate trended in the region of 1.1200. The Euro to Pound exchange rate traded at around 0.8925.