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Pound to Euro Exchange Rate Looks to End Week near Monthly Highs despite Poor UK Retail Data

UK Retail Sales Fails to Notably Influence Pound to Euro Exchange Rate Movement

The Pound to Euro (GBP/EUR) exchange rate slipped slightly from its best levels in a month following the publication of Britain’s disappointing December retail sales report – but just slightly.

This week has seen the Pound to Euro exchange rate climb about a cent from its opening level of 1.1249 to briefly hit its best level since mid-December, 1.1357.

At the time of writing GBP/EUR had slipped from those highs and trended closer to the level of 1.1335, but the pair still looks on track to sustain a solid gain of almost a cent this week.

Sterling (GBP) slipped from its highs due to December’s UK retail sales data, which printed a sharper than expected monthly drop. Month-on-month retail sales were forecast to have worsened from 1.1% to -0.6%, but instead plunged from a revised 1% to -1.5%.

The year-on-year figure was also disappointing, slowing from 1.5% to 1.4% rather than the forecast 3%. Retail sales excluding fuel results fell short of forecasts too.

Analysts noted that the unexpected slowdown in December retail sales was due to the success of Black Friday in 2017. According to Rhian Murphy from the Office for National Statistics (ONS);

‘Retail sales continued to grow in the last three months of the year partly due to Black Friday deals boosting spending. Consumers continue to move Christmas purchases earlier with higher spending in November and lower spending in December than seen in previous years.’

Euro (EUR) Exchange Rates Pressured by European Central Bank (ECB) Uncertainty

Recent Eurozone data has continued to indicate that the currency bloc saw strong growth up until the end of 2017 but market demand for the Euro (EUR) has faded due to mixed messages from the European Central Bank (ECB).

In the meeting minutes of its December policy decision, published last week, the bank seemed to be hinting that it would evolve the language used in its forward guidance sometime in early 2018.

This caused speculation that the ECB could be preparing to take a more hawkish tone on monetary policy sooner than markets previously expected.

However, due to the strong performance of the Euro in recent weeks, some ECB officials recently made comments expressing concern with the value of the shared currency.

As ECB officials have hinted that the strength of the Euro could be an obstacle and argued that the stronger Euro did not correlate to any notable change in the Eurozone economic outlook, investors sold the currency from its highs this week and this made it easier for GBP/EUR to rise.

Pound to Euro (GBP/EUR) Forecast: European Central Bank (ECB) Policy Decision Ahead

Next week could prove pivotal for the Pound to Euro (GBP/EUR) exchange rate, as multiple key UK ecostats will be published and the European Central Bank (ECB) will hold its highly anticipated January policy decision.

Sterling trade is likely to drive GBP/EUR movement earlier in the week depending on if UK data surprises investors. Tuesday will see the publication of Britain’s public sector net borrowing and CBI business results.

Wednesday will follow with Britain’s influential November job market report, which includes the key unemployment rate and wage growth results.

The difference between UK inflation and wage growth remains a key concern for investors and economists, as inflation surging ahead of wages has caused a pay squeeze that could have a negative effect on consumer activity.

As a result, if UK wage growth beats expectations the Pound is likely to see stronger demand.

Towards the end of next week the market focus will be on the European Central Bank policy decision. The ECB is not expected to make any changes to monetary policy or even change its tone, but any signs of changes in language are likely to have an impact on Euro trade.

The Euro could also be affected by Markit’s January PMI projections, which are due for publication on Wednesday.