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UK Retail Sales Data Strengthen Pound Euro Slightly but Pair Remains Low

  • Pound Euro Trends at Around 1.16 – Fails to hold Thursday recovery
  • UK Wage Growth Slows – Concern of UK consumer pay squeeze rises
  • British Retail Sales Impress – But GBP EUR hit by ‘flash crash’
  • ForecastEurozone PMIs Next Week – How has Eurozone economy performed in May?

Pound Euro Recovery Limited Despite Strong Retail Data

Demand for the Pound Euro exchange rate was weak on Friday, indicating investors were not interested in buying the pair back up to the recovery made on Thursday.

After the small Sterling ‘flash crash’, the pair continued to trend in the region of 1.16 up until the end of the week’s European session.

Friday’s Eurozone data had little influence on the pair, as May’s consumer confidence survey failed to meet expectations of an improvement to -3.

Regardless, the improvement from -3.6 to -3.3 left the print at its best level since July 2007 which still signals that the Eurozone is gradually recovering from its debt crisis.

Eurozone PMIs are likely to be the biggest focus for Euro investors next week. They will be published on Tuesday.

[Previously updated 12:49 BST 19/05/2017]

Thursday saw the Pound Euro exchange rate briefly surge back above the level of 1.17 as Britain’s April retail sales report came in well above expectations and lightened concerns about Britain’s economic growth.

However, on Thursday evening the pair suddenly slipped back down to 1.16. Analysts are uncertain as to what caused this small Pound ‘flash crash’, but some speculate it is due to a series of ‘stop-loss’ orders being activated as the Pound’s value increased past significant levels.

Britain’s April retail sales were projected to improve slightly from -1.4% to 1% month-on-month, and from 2% to 2.1% year-on-year. However, the monthly figure jumped to 2.3% and the yearly print doubled to an impressive 4%.

This was due to Easter taking place in April this year, as well as warmer weather improving consumers’ mood for shopping.

[Published 06:00 BST 18/05/2017]

Another day of seemingly strong UK data was not enough to help the Pound Euro exchange rate recover. As investors digested Wednesday’s British employment stats, news of slowing wage growth led to increased concerns about the UK economic outlook.

GBP EUR opened this week trending at the level of 1.1788. Since then the pair has lost over a cent in value. GBP EUR hit its lowest level since March, 1.1600, on Wednesday afternoon

Pound (GBP) Fails to Benefit from 40-Year-Low Unemployment

Wednesday’s UK employment data from March contained some impressive stats. Britain’s unemployment rate unexpectedly improved from 4.7% to 4.6% in March, the lowest unemployment rate for the nation since 1975 – 42 years.

The nation’s employment rate rose to 74.8%, a new record high. Over 200k full-time jobs were created and the number of part-time jobs fell by 78k.

However, investors were too downtrodden to enjoy what otherwise seemed like a bumper report due to news that UK wage growth had unexpectedly slowed to 2.1%.

With inflation continuing to rise and wage growth getting slower, analysts are concerned that weaker spending power among UK citizens could dent economic growth in 2017.

The Resolution Foundation offered a gloomy take on the day’s pay news;

‘The good news on jobs is not feeding through to positive news on pay growth, which turned negative at the start of the year and looks set to remain below inflation throughout most of 2017.

Coming so soon after the big post-crisis pay squeeze, this new phase of falling pay means that this decade is set to be the worst in over 200 years for pay packets.’

As a result, investors were hesitant to buy the Pound, especially after hopes of tighter monetary policy from the Bank of England (BoE) have largely faded over the last week.

Euro (EUR) Continues to Enjoy Solid Demand

Things are looking up for the Eurozone, politically and economically, in recent weeks.

This is largely due to the election of pro-EU Emmanuel Macron as France’s new President and his first days on the job have already made markets more confident in his ability to deliver.

Earlier this week, Macron picked centre-right Édouard Philippe as his prime minister. This increased hopes that Macron would find support among French republicans.

He also met with German Chancellor Angela Merkel and the two made calls for a more integrated Eurozone. They also discussed potentially changing EU treaties for the Eurozone in order to modernise and strengthen the bloc, the possibility of which has excited investors.

Thursday’s Eurozone data also helped to support the shared currency.

The Eurozone’s final April Consumer Price Index (CPI) results came in at 0.4% month-on-month and 1.9% year-on-year, solid results that are likely to keep deflation concerns at bay a while longer.

Italy’s March trade balance results also impressed, with the surplus improving further than expected from €1.88b to €5.42b.

Pound Euro Forecast: UK Retail Sales Could Worsen UK Growth Worries

After better-than-expected inflation and unemployment rate stats couldn’t improve Pound demand this week, it’s unlikely that UK retail sales data due on Thursday will be able to give the British currency a boost.

April’s retail sales are predicted to have improved from -1.8% to 1% month-on-month and from 1.7% to 2.1% year-on-year due to Easter.

If retail sales fall short of expectations, concerns about Britain’s economic outlook for 2017 will worsen even further.

Britain has a very consumer-facing economy, so if retail sales have been negatively affected by rising inflation and lower wage growth, it’s possible the economy as a whole could slow later in the year.

It’s possible GBP EUR could recover slightly towards the end of the week if these retail sales figures come in well above expectations. However, with the Euro remaining strong the pair is unlikely to recover to the week’s opening levels.

Thursday’s Eurozone news could also influence Euro demand. Unemployment rates from The Netherlands and France will be published in the morning, followed by speeches from European Central Bank (ECB) officials in the afternoon and evening.

Among them is ECB President Mario Draghi. While Draghi has maintained his usual cautious stance in recent weeks, any indication that he is becoming more hawkish would give the Euro a boost and push the Pound Euro exchange rate lower.