- BHS Enters Administration – 11k British retail chain jobs at risk
- German IFO Disappoints – Eurozone’s only data until Wednesday leaves Euro weak
- Forecast: UK Mortgage Approvals Due – BBA report released this morning
- Forecast: Investors Await CPI – Eurozone CPI reports due later this week
Euro (EUR) Strengthens on Consumer Confidence Survey
GfK’s May report of German consumer confidence scored an unexpectedly high 9.7 on Wednesday morning, surpassing expectations that it would remain at 9.4.
The figure shocked analysts who had anticipated German consumer confidence to be lower, reflecting recent criticism towards the European Central Bank (ECB) from German finance minister Wolfgang Shauble.
The figure instead indicated that German consumers were still confident in the economy. This allowed the Euro to push back against the strengthened Pound, which held ground on solid UK data.
British Gross Domestic Product (GDP) showed an expected slowing of growth from 0.6% to 0.4% in its quarterly report. Investors remained largely undeterred however, as the BBC reports numerous analysts continued to be optimistic for Britain’s upcoming economic year.
If the UK votes to stay in the EU it’s expected that economic output will rebound before the close of 2016.
GBP/EUR Strikes 1.2928
The Pound’s Rally continued on Tuesday despite poor mortgage approvals slightly denting its bullish run.
Forecast to improve from 45,646 to 46,500, the BBA’s mortgage approval report instead printed a disappointing 45,098 – a result that did not sway investors from continuing to back the strengthening Pound.
The Euro remained relatively limp in comparison, with GBP/EUR fluctuating slightly as markets reacted to the poor UK data as well as further reports that the ‘Remain’ campaigns voter turnout was strengthening.
With expectations that the UK will vote to remain part of the EU in June rising, the Pound’s uptrend may continue for the foreseeable future.
The Pound Sterling to Euro (GBP/EUR) exchange rate fluctuated slightly during Monday’s session as poor Eurozone data weakened the Euro and news that a major UK retail chain faces closure weakened the Pound.
GBP/EUR briefly touched on a new month-high of 1.2898 during Monday’s session, but largely trended narrowly in the region of 1.2857.
By the time the European session opened on Tuesday Sterling had strengthened to 1.29 – an over 40-day high.
Today’s UK mortgage approvals report may prove to be the main driver of GBP/EUR movement, although investors will also be on the alert for any EU referendum related news.
11,000 UK Jobs at risk as British Home Stores (BHS) Files for Administration
The Pound faced an unexpected economic hiccup yesterday as the long-standing UK retail chain, British Home Stores (BHS), entered administration after attempted sale and trade deals fell through.
Up to 164 stores and almost 11k employees were at risk as talks to find buyers and make decisions on the company’s deficits began – with analysts comparing the potential loss to the complete closure of well-known UK chain Woolworths in 2008.
According to the BBC, the chain had become increasingly unappealing to buyers due to company debts;
‘The company, which has debts of more than £1.3bn, decided to bring in administrators after talks to sell some of its 164 UK stores to Sports Direct collapsed over the weekend.
Last year, Retail Acquisitions, a consortium of financiers, bought BHS from the retail entrepreneur Sir Philip Green for £1.
At the time, Retail Acquisitions said they would deliver £160m of funding to help turn around the fortunes of the chain, but have not been able to raise the sum.’
However, the Pound minimised its losses after UK Home Secretary Theresa May released comments in support of the EU referendum’s ‘Remain’ campaign, and subsequently dashed ‘Brexit’ bets.
Euro (EUR) Recovery Dampened by Poor German IFO Reports
While Euro gains should have been ripe for the picking on Monday, with the Pound weak from BHS concerns, the shared currency failed to sustain any advancements after domestic data pinned it down.
The Ifo Institute for Economic Research (IFO) released April’s business climate, current assessment and expectations reports on Monday morning, all of which printed below forecasts.
The business climate report scored 106.6, current assessment printed at 113.2, and expectations improved to only 100.4. These figures disappointed investors and left them with little reason to express confidence in the struggling Euro.
This comes after Friday’s slew of poor PMI data for the region, and cautious comments made by European Central Bank (ECB) policymaker Ewald Nowotny over the weekend.
Nowotny defended the ECB’s recent decision towards long-term low and negative rates by arguing that negative rates were a necessity to avoid deflation, according to Reuters. These comments weighed on Euro sentiment, with investors increasingly seeing the currency as unappealing.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Data Quiet Until Tomorrow
The GBP/EUR pair is likely to trade lightly during Tuesday’s session as neither the UK nor the Eurozone have a particularly notable data day.
In just a few hours, the BBA will release their latest mortgage approvals report in what looks to be the day’s only notable UK release. The score is currently tipped to improve from 45,892 to 46,500, and scoring lower is likely to weigh on the Pound.
However, major movement in GBP sentiment is more likely to come from potential developments in the British Home Stores’ (BHS) administration efforts. Currently, analysts do not believe a rescue sale is likely – however administration group Duff & Phelps’ efforts to damage control the retailer’s losses are ongoing.
Many shoppers have expressed their sadness about the potential closure of BHS, a possibility that would cause the loss of over 10,000 UK jobs and throttle UK sentiment.
The Eurozone, on the other hand, has no major news due until Wednesday’s session. Wednesday morning will see the release of German import prices, as well as the anticipated German GfK consumer confidence survey.
The survey is currently projected to remain steady at 9.4 for its May release.