- Pound Euro Exchange Rate Falls Back to Near 1.11 – Hits new weekly low
- UK Retail Sales Beat Expectations – But sales flat overall in first half of 2017
- GBP Forecast: UK Growth Data Next Week – Sterling could recover if they impress
- EUR Forecast: Eurozone PMIs Ahead – Strong data could support Euro strength
Towards the end of the week’s European session, the Pound gave up its recovery attempts and the Pound Euro exchange rate trended near its 2017 lows. At the time of writing, GBP EUR was trading at around 1.1125
The Pound could recover from its recent lows if next week’s UK ecostats impress traders. The biggest focus for Pound traders will be Wednesday’s UK Gross Domestic Product (GDP) projections, as well as any potential Brexit developments.
The strong Euro is likely to hold most of its recent gains unless European Central Bank (ECB) officials attempt to downplay ECB President Draghi’s hints of forward guidance.
[Previously updated 12:43 BST 21/07/2017]
While GBP EUR recovered slightly on Friday morning, it remained close to the week’s worst levels.
The pair hit a fresh 2017 low of 1.1126 shortly before European markets opened for the day. This week also marks the longest period in 2017 that the Pound Euro exchange rate has trended below the level of 1.12.
The day’s Eurozone data has had no notable influence on Euro trade, with single currency traders still excited about the potential of quantitative easing (QE) being discussed by the ECB before the end of the year.
Sterling’s recovery attempts have been limited too, by disappointing UK public sector net borrowing results. The print was forecast to come in at -£4.3b but instead only lightened from -£6.39b to -£6.28b.
[Published 06:00 BST 21/07/2017]
The Pound Euro exchange rate plunged on Thursday as investors perceived that the European Central Bank (ECB) was more likely to tighten monetary policy in the near future than the Bank of England (BoE).
GBP EUR began the week trending at the level of 1.1422. After plunging earlier in the week the pair attempted to recover, before slumping again to a new weekly low of 1.1179 on Thursday.
Pound (GBP) Slumps on Retail Sales Outlook
The Pound was sold on Thursday as investors reacted to the day’s June retail sales report, despite the figures beating market expectations.
Month-on-month retail sales were projected to improve to 0.4%, but instead jumped from a revised -1.1% to 0.6%. Yearly retail sales improved from 0.9% to 2.9%, beating 2.5% forecasts.
The better-than-expected retail activity was caused by June’s hot weather according to the Office for National Statistics (ONS), the group that compiled the data.
While the Pound initially advanced on the better-than-expected stats, the report indicated that overall, Britain’s retail sector had been largely flat in the first half of 2017 after a poor Q1 and decent Q2.
This caused investors to rethink buying the Pound. According to Kathleen Brooks from City Index;
‘Although the bounce in sales last month was a welcome development, it still means that for the first half of the year retail sales will be relatively flat, and may only contribute 0.1% to Q2 GDP. …
Thus, unless we see retail sales rise consistently in the coming months, which could be a big ask as we get deeper into Brexit negotiations that may trigger consumer uncertainty, then second half growth could be hindered, limiting the Pound’s chance of a meaningful rally.’
Investors remain concerned about Britain’s long-term economic outlook and the uncertainties of Brexit negotiations, keeping the Pound weak.
Euro (EUR) Firms as Investors Hope for Autumn Forward Guidance from ECB
The Euro saw an increase in market demand on Thursday, despite a seemingly dovish tone from European Central Bank (ECB) President Mario Draghi.
As was widely expected, the ECB left monetary policy frozen at its loosest levels on records and announced no concrete plans to withdraw its quantitative easing (QE) package.
ECB President Draghi was careful to not hint too much about the bank’s mid to long-term outlook for monetary policy and the Eurozone. Draghi’s indication that the ECB could still extend the QE package if needed was also notably dovish.
On the subject of monetary policy adjustment, Draghi urged patience and clarified that the ECB did not have a set date for when it may begin to discuss its next plans for QE.
He stated the bank should begin these discussions in the autumn, but analysts noted this could be any time between September and December.
Either way, Draghi’s firm hints that QE could be discussed someone in the autumn were enough to excite Euro investors and boost the shared currency. According to Alex Lydall from Foenix Partners;
‘Draghi did his best this afternoon to cap the Euro, failing quite spectacularly! During his press conference, the ECB President noted that officials were unanimous in not outlining a timeframe on tapering, stating the Central Bank ‘was not there yet’.
Many would have seen this in a dovish light and possibly bearish for the single currency, but much the opposite appears to be taking place.’
Pound Euro Forecast: UK Public Sector Net Borrowing Ahead
After its plunges on Tuesday and Thursday, the Pound Euro exchange rate is unlikely to recover much by the end of the week and could end the week relatively close to its 2017 lows.
Friday’s UK public sector net borrowing data could support the Pound slightly if it impresses, but it is unlikely to give the pair a significant boost.
Public sector net borrowing is forecast to have improved slightly, from -£5.99b to -£4.3b in June.
The Eurozone’s Friday data includes Spanish trade balance and Greek current account stats, which are unlikely to inspire any Euro movement.
Euro traders are likely to continue digesting Thursday’s European Central Bank (ECB) news for the rest of the week. If any ECB officials make dovish clarifications or statements, the Euro could fall and help GBP EUR make a late-week recovery.
Key UK and Eurozone data will be published next week. Britain’s Q2 Gross Domestic Product (GDP) projections and Markit’s preliminary July Eurozone PMIs have the most potential to affect the Pound Euro exchange rate next week.