Homepage » News » EUR/GBP » Pound Euro Exchange Rate Under Pressure after Sharp UK Retail Sales Contraction

Pound Euro Exchange Rate Under Pressure after Sharp UK Retail Sales Contraction

March’s UK retail sales surprised to the downside, putting pressure on the Pound as sales volumes contracted -1.8% on the month.

As Kate Davies, Senior Statistician at the Office for National Statistics (ONS), noted:

‘Today’s retail sales figures show a decline on the month and on the three months to March, which coincides with quarter 1 in 2017. This is the first time we’ve seen a quarterly decline since 2013, and it seems to be a consequence of price increases across a whole range of sectors.’

With rising inflation already cutting into household finances this does not bode well for the outlook of the UK economy.

Inflationary pressure is likely to mount further over the coming months which could see real wages weaken further, in combination with continued stagnation in earnings growth.

Given that strong consumer spending has helped to keep the economy in a resilient state in the wake of the Brexit vote this naturally weighed on demand for Sterling.

Developments in the general election campaign could provoke further volatility for the Pound Euro exchange rate in the coming weeks.

If Theresa May continues to campaign on hard Brexit rhetoric this could reverse some of the recent gains of the Pound, as markets have bet on a larger Conservative majority increasing the odds of a softer exit from the EU.

As the final outcome of the election is still far from certain, however, GBP exchange rates are likely to remain vulnerable to further bearish bias.

The mood surrounding the French presidential election continued to fluctuate, meanwhile, leaving the Euro lacking in substantial support.

With roughly 30% of voters still undecided the race remains tight and prone to an upset, even if centrist Emmanuel Macron remains in the lead in the opinion polls.

There was some disappointment from the German services PMI on Friday, which dipped from 55.6 to 54.7 in April.

Even so, the latest raft of Eurozone PMIs proved generally encouraging, particularly as French economic activity picked up markedly.

A significant widening of the current account surplus also improved optimism in the outlook of the currency union, although the European Central Bank (ECB) is still considered unlikely to alter its monetary policy stance in the near future.

Nevertheless, this was not enough to weaken the GPB EUR exchange rate for long.

Worries that National Front leader Marine Le Pen will pass through into the second round of the election are still limiting the upside potential of the single currency.

If Le Pen or similarly Eurosceptic far-left candidate Jean-Luc Mélenchon secure enough votes to enter the final run-off the Euro is likely to soften further.

On the other hand, should Macron and Republican Francois Fillon both make the final two then EUR exchange rates could surge, removing the threat of France potentially leaving the currency union.

Current GBP EUR Interbank Exchange Rates

At the time of writing, the Pound Euro exchange rate was trending narrowly at 1.19. Meanwhile, the Euro Pound exchange rate was similarly range-bound around 0.83.