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Poor UK Retail Sales Keep Pressure on Pound to Euro (GBP/EUR) Exchange Rate

Pound to Euro (GBP/EUR) Exchange Rate Remains Limp as UK Data Disappoints

The latest UK data fell short of expectations on Friday and as a result the Pound to Euro (GBP/EUR) exchange rate slipped. Brexit concerns and mixed data have weighed on the Pound (GBP) this week.

Despite the news weighing on Sterling however, GBP/EUR remained relatively close to the week’s opening levels. GBP/EUR opened the week at the level of 1.1285 and trended nearer 1.1265 on Friday. The pair briefly touched a two-month-low of 1.1215 on Wednesday.

Sterling recovered from its worst levels on Thursday but Friday’s disappointing UK retail data prevented the British currency from extending its recovery.

UK retail sales were forecast to have risen from -1.5% to 0.5% month-on-month and from 1.4% to 2.6% year-on-year.

While the previous figures were revised higher, the January figures came in with disappointing results of 0.1% and 1.6% respectively. Analysts such as James Smith from ING Bank believe that more weakness could be ahead for UK retail;

‘After what was a particularly tough Christmas trading period for retailers, consumers continued to keep the foot on the brakes through January. Retail sales barely increased in the first month of the year (0.1% rise), suggesting that shoppers were reluctant to heavily participate in the traditional January sales, backing-up separate findings from Visa. For now, we see few catalysts for a sustained rebound in spending over coming months.

Consumer confidence remains depressed (despite some recent improvement) and disposable incomes look set to remain under pressure.’

Euro (EUR) Exchange Rates Sturdy as Eurozone Data Boosts Currency Appeal

While recent Eurozone data and news hasn’t had much notable impact on the Euro (EUR) outlook, it has helped the shared currency to hold its ground.

Wednesday’s Eurozone Gross Domestic Product (GDP) projections from Q4 2017 put Germany and the Eurozone in the top two for G7 nation growth in 2017, while Eurozone industrial production beat expectations in December.

Thursday followed with unemployment stats from The Netherlands and France. The Netherlands’ January unemployment rate improved from 4.4% to 4.2%, while France’s jumped from 9.6% to 8.9%.

France’s unemployment rate was significant as it was France’s first unemployment rate below 9% since 2009.

Friday rounded off a week of solid Eurozone data, as Germany’s January wholesale prices improved, coming in at 0.9% month-on-month and 2% year-on-year.

Pound (GBP) Exchange Rates Fail to Benefit from Brexit Hopes

On Thursday it emerged that an EU plan for the potential post-Brexit transition period had removed a so-called ‘punishment clause’.

A previous version of the plan mentioned that if the UK broke EU rules during the transition, it would lose access to certain parts of the EU single market.

However, the EU’s tone on the transition period appeared to have softened this week as the plan reportedly now only mentions the EU’s usual infringement process.

This boosted market hopes that UK-EU negotiations would go smoothly in 2018 and helped GBP/EUR climb away from this week’s lows. Poor UK retail data ultimately prevented Sterling from recovering further though.

Pound to Euro (GBP/EUR) Forecast: UK Job and Growth Data Next Week

The Pound to Euro (GBP/EUR) exchange rate could be influenced by UK data in the coming week, as major UK ecostats will be published on Wednesday and Thursday.

Wednesday will see the publication of Britain’s December job market results, including wage growth data, as well as January’s jobless claims data. Britain’s latest Q4 2017 Gross Domestic Product (GDP) projections will follow on Thursday.

The biggest focus for markets will likely be Britain’s December wage data. If UK wages beat expectations again, Bank of England (BoE) interest rate hike bets could rise further and the Pound could strengthen.

However, if uncertainty about the Brexit process worsens again the Pound’s strength could be limited.

The Euro, on the other hand, is likely to be affected by major confidence data from Germany and the Eurozone, due on Tuesday.

Markit’s February PMI projections for the Eurozone, due for publication on Wednesday, could also inspire movement in the Pound to Euro (GBP/EUR) exchange rate.