Pound to Euro Exchange Rate Fails to Find Support in UK Data as Turkish Jitters Lighten
Despite some better-than-expected UK ecostats this week, the Pound Sterling to Euro (GBP/EUR) exchange rate has been unable to advance. ‘No deal’ Brexit concerns persist, and as concerns about a possible currency crisis in Turkey cool somewhat the Euro (EUR) has strengthened.
While well above last week’s 2018 low of 1.1083, GBP/EUR is also still well below last week’s opening level of 1.1237 as this week’s recovery attempts have failed so far. At the time of writing on Thursday morning, GBP/EUR trended in the region of 1.1170.
This week’s UK data did help support the Pound (GBP) following a week of slumps on ‘no deal’ Brexit jitters, but not enough for Sterling to register a recovery.
On top of that, the Euro has been supported by some decent Eurozone ecostats, as well as anticipation for Friday’s Eurozone inflation rate data.
Pound (GBP) Exchange Rates Fail to Advance Despite Impressive UK Retail Sales
A jump in UK retail activity, caused largely by stronger performance of online retailers in July, led to a much stronger than expected UK retail sales report.
UK retail sales were forecast to bounce back to 0.2% month-on-month in July, following a disappointing -0.5% figure in June. However, the result came in at a surprisingly strong 0.7%.
Similarly, the yearly retail sales figure was forecast to edge higher from 2.9% to 3% but instead jumped to 3.5%. Both retail sales figures excluding fuel were also much better than forecast.
According to the Office for National Statistics’ (ONS) report, the bounce in consumer activity was due to the ongoing heatwave in the UK, as well as the 2018 World Cup.
Some continued weakness in high street retailers was offset by the strength of online retail activity.
According to David Cheetham from XTB Ltd.:
‘… the Pound clearly remains under pressure, but this release has caused a positive, albeit small, reaction which may hopefully lay the foundations for a more sustained recovery in Sterling.’
Euro (EUR) Exchange Rates Steady on Signs of Resilience amid US Trade Concerns
Meanwhile, the Euro’s fortunes appear to have improved since the beginning of the week as broad market concerns about the Turkish Lira (TRY) have slightly abated and the Eurozone’s latest data has cooled concerns about US trade protectionism.
For much of the past week, the Euro was weakened by concerns that a plummeting Turkish Lira could have a negative impact on Eurozone banks.
However, since Wednesday efforts from Turkey’s government to cool markets have started to have an effect and the Turkish Lira has recovered from its worst levels.
As the Turkish Lira climbs, investors are less concerned about the possibility of its value having a negative impact on the Eurozone economy. This has made the Euro more appealing too.
On top of that, Thursday saw the publication of the Eurozone’s June trade surplus update, which was stronger than expected and gave the Euro further support.
The data suggested to analysts that the Eurozone may be weathering concerns about US trade protectionism better than expected.
Pound to Euro (GBP/EUR) Forecast: Eurozone Inflation Rate in Focus
Sterling is unlikely to see a notable shift in movement this week unless there are surprising Brexit developments, and if Friday’s key Eurozone data beats expectations it could push the Pound to Euro (GBP/EUR) exchange rate down even lower.
Friday will see the publication of the Eurozone’s final July Consumer Price Index (CPI) results. Eurozone inflation is forecast to have edged higher year-on-year, but have contracted at around -0.3% month-on-month.
Notably, the Eurozone’s yearly core inflation rate is forecast to have climbed from 0.9% to 1.1%.
If Eurozone inflation beats expectations, investors may speculate that the European Central Bank (ECB) could be pressured to tighten Eurozone monetary policy sooner than expected. This would bolster Euro demand.
The opposite is also true though. If Eurozone inflation disappoints investors, the Pound to Euro (GBP/EUR) exchange rate could still end the week slightly higher.