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Pound Euro Falls from 2017 Highs on Concerning UK Retail Sales Data

After trending near weekly lows for most of Friday’s session, the Pound to Euro exchange rate recovered slightly on Friday afternoon but still struggled to hold above the key level of 1.17.

GBP EUR could continue to fall next week too if the Eurozone’s incoming data impresses.

Markit will be publishing its preliminary February PMIs for the bloc on Thursday and later in the week the Eurozone’s final January Consumer Price Index (CPI) results will be published.

Strong figures here will increase hopes that despite last week’s underwhelming Eurozone GDP results, the bloc is seeing solid performance so far in 2017.

Investors will also be focused on Britain’s preliminary Q4 Gross Domestic Product (GDP) results on Wednesday.

[Previously updated 14:16 GMT 17/02/2017]

The Pound to Euro exchange rate remained near its worst weekly levels throughout Friday morning.

Amid a lack of fresh ecostats due for the rest of the day, the Pound to Euro exchange rate is unlikely to see a solid recovery.

Its losses were held due to the strength of the Euro in the late-week. The shared currency continued to benefit from hopes of stronger trade ties between the EU and Canada under the CETA trade deal – particularly with US trade potentially under threat under the protectionist Trump Presidency.

[Previously updated 09:58 GMT 17/02/2017]

With the UK’s retail sales figures coming in far lower than expected, the Pound Euro exchange rate dropped during the European session.

GBP/EUR slipped back to trading in the region of 1.16, with the Pound also recording notable losses against the US Dollar, Australian Dollar, New Zealand Dollar and Canadian Dollar.

Rather than rising by 0.7% on the month in January, as expected, retail sales slumped by -0.3%.

The annual result was also a disappointment, printing at 2.6% rather than the 3.9% expected.

[Previously updated 08:30 GMT 17/02/2017]

After high volatility earlier in the week, the Pound to Euro exchange rate turned limp on Thursday. A lack of fresh ecostats from Britain or the Eurozone meant GBP EUR spent most of the day trending flatly. However, the currency pair could be in line for some volatility before the weekend with the UK set to publish one final influential ecostat.

After reaching a weekly high of 1.18 on Tuesday, GBP EUR has tumbled back towards the week’s opening levels of 1.17. This has been largely due to underwhelming UK data.

Traders spent most of Thursday anticipating the UK’s January retail sales figures.

Analysts predict UK retail sales growth will slow from 4.3% to 3.4% year-on-year, but increase from -1.9% to 0.9% month-on-month.

However, if retail sales come in worse-than-predicted it will aggravate investor concerns that the UK retail sector will slow further throughout 2017 as consumers struggle to keep up with inflation.

The UK services sector accounts for over 70% of total economic growth so any weakening in this area could dent the nation’s economic outlook and keep the Pound trending on the back foot.

Earlier in the week, news that the UK Consumer Price Index (CPI) had not increased as much as expected in January knocked the Pound down from its best levels.

UK inflation failed to improve from 1.6% to 1.9% as forecast. Instead, the figure came in at 1.8%. This increased concerns that the Bank of England (BoE) would not hike UK interest rates any time soon.

Wednesday’s UK employment report followed with news that wage growth was slowing in the three months through December. Wages including bonuses slowed from 2.8% to 2.6% while wages excluding bonuses slowed from 2.7% to 2.6%.

While the rest of the jobs report was solid, investors were concerned that wages would rise far slower than UK inflation. Analysts have suggested this could cause Britain’s retail sector to slow significantly as consumers rein in spending.

According to Howard Archer, chief UK economist from IHS;

‘Slowing earnings growth adds to the squeeze on consumers that is likely to increasingly weigh down on economic activity

Indeed, consumers’ purchasing power is now being markedly diluted.

We suspect that in a likely challenging environment, companies will increasingly look to hold down pay to try and limit their total costs as the weakened pound pushes up their input costs.’

This week’s UK data calls into question the continued sturdiness of Britain’s economic outlook during the Brexit process. However, comments from a French senate report have also left UK investors nervous.

The cross-party report indicates that France’s stance on Brexit negotiations is that the UK must not get a better deal from the EU than it has now.

Rising hopes that the European Union would reach a quick deal to continue Greek debt relief measures, as well as mixed demand for the US Dollar (USD), also left the Euro stronger on Thursday.

The Euro recorded a mixed to poor performance throughout the week until Thursday’s session, as growth and populism concerns weighed on the shared currency.

This week’s Eurozone growth data failed to meet expectations. While growth in the bloc remains broadly optimistic, this drop wasn’t enough to ease Eurozone political jitters.

Euro traders are becoming increasingly anxious that populist politics like protectionism and nationalism will rise in the Eurozone during this year’s key elections.

Elections in France are in focus as far-right nationalist Marine Le Pen appears to be growing in popularity. 2017 will also see elections in The Netherlands and Germany.

Amid a lack of influential Eurozone ecostats due and persistent political concerns, the Pound to Euro exchange rate could easily recover on Friday if the day’s UK retail sales results impress.

G20 finance ministers will meet towards the end of the week. This could influence Euro trade if ministers discuss the health and future of the shared currency as well as the Eurozone project as a whole.

Friday will also see the publication of the Eurozone’s December construction output results, though these are unlikely to influence Euro movement significantly.

While Eurozone political concerns have dominated headlines this week, economic indicators may come into focus again next week as the Eurozone’s preliminary February PMIs from Markit will be published.

If they manage to impress and UK growth concerns remain, the Pound to Euro exchange rate may have a tough time reaching the level of 1.18 again.