UK Retail Sales Contraction Weighs on Pound Euro (GBP/EUR) Exchange Rate
After a surprisingly sharp contraction in the BRC like-for-like sales figure the Pound to Euro (GBP/EUR) exchange rate struggled to find any particular traction.
As sales slumped -4.2% on the year in April this discouraged investors, indicating that consumers are continuing to rein in their spending.
Support for the Pound (GBP) has largely diminished as confidence in the outlook of the UK economy diminishes, thanks to the weaker nature of recent domestic data.
With Theresa May’s cabinet still looking at odds over the subject of Brexit and the customs union markets have seen little cause for confidence in GBP exchange rates.
As the lingering sense of Brexit-based anxiety is likely to persist for some time to come the upside potential of the GBP/EUR exchange rate looks limited.
GBP/EUR Exchange Rate Fails to Capitalise on Fresh Geopolitical Tensions
News that the US has pulled out of the Iran nuclear deal failed to offer the Pound to Euro (GBP/EUR) exchange rate any support.
Even so, the development does not bode overly well for the Eurozone economy as the Trump administration’s approach to trade and global politics continues to harden.
With the threat of steel and aluminium tariffs still hanging over the EU this naturally provoked fresh jitters for investors.
If the US shows less willingness to compromise this could weigh heavily on Euro (EUR) exchange rates, particularly if any concerns are raised over the size of the German trade surplus.
As Brian Martin, research analyst at ANZ, commented:
‘A solution to the current trade impasse could involve some (temporary) introduction of quotas for EU steel and aluminium exports to the US, which amounted to EUR6.4bn last year. That would allow more extensive trade talks to take place.
‘The EU has said that it will not negotiate with a gun held to its head. The US says that it will not delay tariffs indefinitely (1 June). The nominal differences could actually be quite small (EUR640m). But emotions appear high and these need to be overcome.’
Further Pound Euro (GBP/EUR) Exchange Rate Weakness Forecast on BoE Dovishness
The Pound to Euro (GBP/EUR) exchange rate is likely to come under additional pressure ahead of Thursday’s Bank of England (BoE) policy announcement.
While markets no longer expect to see policymakers raise interest rates GBP exchange rates still look vulnerable to any dovish commentary.
If the odds of a 2018 interest rate hike diminish further the appeal of the Pound is likely to sour, encouraging investors to continue selling out of Sterling.
A more upbeat quarterly Inflation Report could offer the GBP/EUR exchange rate some measure of support, as long as signs still point towards the BoE tightening monetary policy further in the coming months.
If forecasts point towards a continued easing in inflationary pressure, though, the Pound to Euro (GBP/EUR) exchange rate looks set to remain on a weaker footing.