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Pound Sterling to Euro Exchange Rate Static as UK Inflation Hits One-Year Low

The Pound (GBP) has made a minor loss against the Euro (EUR) on Thursday afternoon, despite supportive UK sales data.

UK retail sales activity rose in all fields during April, but this hasn’t been enough to push the GBP/EUR exchange rate up.

The lack of movement is potentially because economists are forecasting that the retail sector will struggle in the future because of rising inflation.

(Last updated 24th May, 2018)

The Pound to Euro (GBP/EUR) exchange rate has continued to hold close to opening levels today, with negative UK and Eurozone news cancelling each other out.

Although Pound Sterling (GBP) has been softened by disappointing UK inflation rate data, the Euro (EUR) has also been devalued by confidence stats.

A consumer confidence estimate for May has shown an index dip from 0.3 points to 0.2; April’s 0.3 point figure was itself revised down from 0.4.

It should be noted that this was not the worst outcome according to some estimates; a few pessimistic analysts had forecast a downturn to 0.1 points.

UK Inflation Rate Slowdown Leaves Pound Sterling to Euro (GBP/EUR) Exchange Rate Steady

The Pound (GBP) has held close to opening levels against the Euro (EUR) today, although more broadly Pound Sterling has struggled because of inflation rate data.

The year-on-year UK inflation rate fell from 2.5% to 2.4% in April, making this the lowest reading since March 2017.

On the one hand, this has been good news for UK households who will face reduced pressure on their incomes.

On the other, Hargreaves Lansdown Senior Economist Ben Brettel believes that a Bank of England (BoE) interest rate hike in the coming months is now unlikely:

‘Inflation falling for the third month in a row further dents any hopes of a late-summer rate rise from the BoE.

‘It looks to me like 2018 will be another year of the “Goldilocks” economy – not too hot to stoke inflation and force interest rates higher, and not too cold to induce any panic among policymakers.’

Offering a forecast, AJ Bell Chief Investment Officer Kevin Doran has warned the recent inflation rate slowdown could prove temporary:

‘The jump in the oil price has started to hit petrol pumps, pushing up costs for UK consumers and businesses alike.

‘In addition, the weak Pound will be driving up input costs for many UK companies which will ultimately filter through to UK consumers in the coming months.

‘If inflation does increase, UK consumers will once again start to feel the pinch.’

Euro to Pound Sterling (EUR/GBP) Exchange Rate Flat on Eurozone PMI Slowdown

Although Pound Sterling (GBP) traders have been unsettled today, the Euro (EUR) has also faced headwinds which have prevented either currency edging ahead.

In this case, the single currency has been weakened by the news that Eurozone PMI activity readings have shown slowdowns for May’s estimates.

The composite, manufacturing and services sector readings have all dropped, which has lowered confidence among Euro traders.

Suggesting that May’s readings are down to holidays more than anything else, IHS Markit Chief Business Economist Chris Williamson said:

‘The May PMI brought yet another set of disappointing survey results, though once again a note of caution is required when interpreting the findings.

‘While prior months have seen various factors such as extreme weather, strikes, illness and the timing of Easter dampen growth, May saw reports of business being adversely affected by an unusually high number of public holidays.’

Pound to Euro (GBP/EUR) Exchange Rate Forecast: Will Pound Sterling Recover on UK Sales Growth?

Despite today’s disappointing UK inflation rate data, the Pound (GBP) could still rise against the Euro (EUR) when Thursday’s retail sales stats come out.

These are predicted to show growth in activity on the month in April compared to March, which could reassure Pound Sterling traders about sector stability.

That said, annual readings are tipped to show a slowdown, which could mean that Pound ultimately declines against the Euro because of continued disappointment.

The Euro to Pound (EUR/GBP) exchange rate may dip before then, if this afternoon’s consumer confidence flash for May shows a surprise drop in sentiment.