The Euro has risen by 0.5% against the Pound today, with negative UK data outweighing alarming Catalonian news.
- EUR GBP rate rises to 0.8977 – GBP EUR down at 1139
- Spanish government chooses Article 155 – Catalonia to lose control over weekend
- Pound slides on falling retail sales – Will BoE still consider November rate hike?
- Euro could dip on Catalan violence – Further Pound losses possible on borrowing stats
In the UK, the issue has been disappointing retail sales figures, which showed worse conditions across the board.
EUR GBP Rate Rises despite Spanish Override of Catalonian Rule
The clear Euro to Pound rise seen today comes despite a concerning development in Spain, related to Catalonia’s attempts to gain independence.
A key decision by the Spanish government has been seen as a potentially lasting conclusion to Catalonian independence – the government has decided to trigger Article 155 and remove Catalonian regional powers.
This decision comes after Catalonian President Carles Puigdemont missed another deadline, failing to either declare independence or back down on independence efforts.
Puigdemont sent a letter to the government asking for talks to take place, but government officials have seemingly had enough.
The regional takeover will start on the weekend, but could be met with fierce political and civic opposition, possibly to the level of violence.
UK Sales Disappointment Drags Pound to Euro Rate Down
The day’s UK news has been negative, showing slowing annual retail sales in September and monthly sales contractions.
All results have been worse-than-forecast and are being cited as clear evidence of the pressures exerted by the current wage squeeze.
Andrew Sentance of PricewaterhouseCoopers, formerly a Bank of England (BoE) policymaker, has looked at the figures. Giving a long-term outlook, Mr Sentance has said;
‘The underlying trend is towards slower retail growth and we are seeing the weakest rate of increase in the volume of spending for over four years and since the summer of 2013.
In the past three months, year-on-year sales volumes were up just 1.5%, compared with around 4% annual growth in the three years 2014 to 2016.
The main reason for this slowdown is inflation; this surge in inflation, which mainly reflects the fall in Sterling since the EU Referendum vote, is squeezing consumers and holding back the growth of retail spending in volume terms’.
Also commenting has been Howard Archer, Chief Economist at EY Item Club. Looking at the odds of a Bank of England (BoE) interest rate hike after this news, Archer said;
‘Disappointing September UK retail sales may weigh down on expectations that the BOE will hike interest rates from 0.25% to 0.50% on November 2nd’.
EUR GBP Forecast: Volatility possible on Catalan Reactions
The Euro might drop before the weekend, depending on how the Catalonian people react to the government’s decision.
If there is widespread civic unrest then the Euro could tumble, given that it would leave the issue of Catalonian independence very much on the agenda.
The Euro could still remain dominant against the Pound, however, if UK borrowing figures print as expected.
In September, forecasts are for an expansion of the present borrowing deficit, which would only further limit Chancellor Philip Hammond’s options in the November budget.
Current Interbank EUR GBP Exchange Rates
At the time of writing, the Euro to Pound (EUR GBP) exchange rate was trading at 0.8977 and the Pound to Euro (GBP EUR) exchange rate was trading at 1.1139.