Ahead of the weekend the Pound (GBP) remained on bearish form as ‘Brexit’ uncertainty continued to drag on sentiment.
Stronger UK Retail Sales Failed to Shore up Pound Sterling (GBP)
Demand for Pound Sterling (GBP) continued to diminish on Friday, despite better-than-expected January Retail Sales. Making up for a more disappointing December retail session sales grew 2.3% on the month and an impressive 5.2% on the year. Alongside this the UK’s Public Sector Net Borrowing report showed the largest January surplus in eight years, an apparent endorsement of Chancellor George Osborne’s Autumn Statement and plans to cut the national deficit.
However, these bullish figures were fast overshadowed as investors remained primarily concerned with the outcome of Prime Minister David Cameron’s negotiations with European leaders over reforms to the UK’s position within the EU. With Poland, Hungary, the Czech Republic and others having already expressed objections to components of the draft deal the odds of a successful resolution appeared lower.
Euro (EUR) Exchange Rate Trended Higher Despite Dovish ECB Meeting Minutes
While German Producer Prices proved weaker-than-expected in January, defying forecast to contract further from -2.3% to -2.4%, the Euro (EUR) was on stronger form ahead of the weekend. Traders appear to remain largely unconcerned by the possibility that the European Central Bank (ECB) will announce further monetary loosening measures in March, in spite of the dovish tone of January’s meeting minutes.
Safe-haven demand shored up the single currency as concerns over the current global oil glut continued to mount. Although Saudi Arabia and Russia appear to be on the verge of agreeing a production freeze, with positive noises from Iran, crude prices slumped in response to another increase in US inventories. With stock markets struggling to maintain the more bullish mood of the earlier week investors flocked back to the less exposed Euro, helping to push the Pound Sterling to Euro (GBP/EUR) exchange rate further down.
GBP/EUR Exchange Rate Forecast: Weaker Eurozone PMIs to Push Euro Lower
Monday’s raft of Eurozone Manufacturing and Services PMIs could provoke a fresh round of Euro softness, however, as forecasts suggest that economic conditions within the currency union continued to decline in February. Of particular concern will be the German data, with any fresh signs of slowness within the Eurozone’s economic powerhouse likely to put additional pressure on the ECB to act in March.
Current GBP, EUR Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending lower at 1.2887, while the Euro to Pound Sterling (EUR/GBP) pairing was making gains at 0.7760.