Eurozone Retail Sales Contraction Limits Pound Sterling Euro (GBP/EUR) Exchange Rate Downside
As Eurozone retail sales saw an unexpected contraction on the month in May this helped to limit the downside pressure on the Pound Sterling to Euro (GBP/EUR) exchange rate.
Although the previous month’s reading saw a positive revision investors were still disappointed to find that sales had slowed, suggesting a weaker level of consumer confidence.
Given the current weakness of the Eurozone manufacturing sector this slowdown in retail sales raised concerns that the service sector could also falter in the months ahead.
With growth momentum already under pressure a deterioration in consumer spending could see the Eurozone economy struggle to post a solid second quarter gross domestic product reading.
As the German construction PMI also slowed to a standstill in June this added to the bearish outlook of the Euro (EUR), although this was still not enough to boost the GBP/EUR exchange rate at this juncture.
Pound Sterling (GBP) Struggles to Recover from UK Service Sector Weakness
In the wake of Wednesday’s underwhelming UK services PMI reading the mood towards Pound Sterling (GBP) remained generally bearish.
With the UK economy appearing on course for a weak second quarter gross domestic product investors saw limited incentive to buy back into the Pound at this stage.
As the persistent sense of uncertainty over Brexit looks set to drag on for some weeks to come this is likely to keep the economy on the back foot, limiting the potential for a rebound in growth.
Ahead of the weekend the Pound could come under further pressure if June’s Halifax house price index proves negative.
Fresh evidence of a slowdown within the domestic housing market would leave the GBP/EUR exchange rate vulnerable to additional selling pressure.
Without signs of resilience within the UK economy worries over the wider outlook are likely to persist, to the detriment of Pound Sterling.
German Factory Orders Decline Set to Drag Euro (EUR) Exchange Rates Lower
The mood towards the Euro could deteriorate further on Friday, meanwhile, as forecasts point towards another lacklustre month for German factory orders.
With factory orders expected to contract -6.3% on the year in May this could offer fresh evidence of the underlying weakness of the German manufacturing sector.
As long as the Eurozone’s powerhouse economy continues to struggle in the face of the global economic slowdown and increased trade tensions the appeal of the single currency is unlikely to improve.
However, a positive surprise from the monthly orders figure may help to limit the downside pressure on EUR exchange rates in the short term.
If International Monetary Fund (IMF) managing director Christine Lagarde is confirmed as the next head of the European Central Bank (ECB) this may also weigh on the Euro.
With markets disappointed that a more hawkish policymaker was not selected for the role this could keep the single currency on a weaker footing for the time being.