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Soft UK Retail Sales sees GBP/EUR and GBP/USD Exchange Rates Decline

UPDATE

The Pound Sterling to Euro (GBP/EUR) exchange rate softened by around -0.4% on Tuesday morning, whilst the Pound Sterling to US Dollar (GBP/USD) exchange rate declined by around -0.2%.

After British retail sales unexpectedly contracted, and with UK house prices failing to grow in line with expectations, the Pound softened versus most of its major peers as traders await Manufacturing/Industrial Production data. The shared currency strengthened versus its peers ahead of Eurozone Gross Domestic Product data as traders readjust Euro positions following the significant fluctuation in the wake of the European Central Bank (ECB) interest rate decision. With an absence of significant US data today the Dollar will likely see volatility in response to market movement. It is possible that the US Dollar will hold a position of strength with vastly improved bets regarding the likelihood of a December Federal Reserve benchmark rate hike.

The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3825.

The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.5017.

Yesterday…

Pound Sterling to Euro (GBP/EUR) Conversion Rate Predicted to Trend Higher after German Industrial Production Missed Estimates

The Pound Sterling to Euro (GBP/EUR) exchange rate advanced by around 0.3% on Monday afternoon.

With market volatility heightened last week following the shock decision from the European Central Bank (ECB), the Pound saw significant fluctuations. The rising single currency weighed on demand for the British asset amid prospects of less lucrative cross-Channel trade. However, Friday saw Sterling stabilise after Euro profit-taking caused the single currency to drop from fresh highs. On Monday morning the Pound fluctuated versus its peers as a complete absence of domestic data has seen Sterling movement in response to market volatility.

The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3910.

Now that traders have digested the ECB’s shock decision to only cut the deposit facility rate by 10 basis points and avoid ramping up asset purchases, the single currency has settled to more appropriate levels. This morning’s Euro downtrend can be linked to a combination of weak domestic ecostats and US Dollar strength. On the year, October’s German Industrial Production was predicted to advance by 0.7%, but the actual result saw industrial output stagnate at 0.0%. Also weighing on demand for the single currency was December’s Eurozone Investor Confidence which failed to meet with the median market forecast rise from 15.1 to 17.0, with the actual result only reaching 15.7.

Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast to Edge Lower despite Poor US Labour Market Conditions Index

The Pound Sterling to US Dollar (GBP/USD) exchange rate ticked lower by around -0.2% on Monday afternoon.

Analysts at Credit Agricole stated last week that the Pound may be subject to further weakness after having been the weakest of the G10 currencies, with the exception of the Euro, in the past 30 days. ‘The underperformance seems in part to be driven by weaker than expected data releases of late, which pushed the UK Economic Surprise Indicator (ESI) back close to recent lows.’ Credit Agricole also added that this week’s ‘BoE meeting and Industrial/Manufacturing Production could add to the recent GBP-downtrend. Indeed, potential data disappointments and/or reiteration of the BoE dovish language from the November inflation report could encourage a fresh bout of GBP-selling.’

The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.5086.

After last week’s US Non-Farm Payrolls data produced a better-than-expected result, the US Dollar rallied in response to much improved bets regarding the likelihood of a Federal Reserve rate hike on December 16th. On Monday afternoon the ‘Greenback’ (USD) continues to advance versus its major peers despite a below-forecast result from November’s Change in Labour Market Conditions Index. However, the data wasn’t hugely impactful given that the ecostat is unlikely to inform the forthcoming Federal Open Market Committee (FOMC) decision. However, the forthcoming speech from Fed official James Bullard may be more impactful should Bullard make any surprising comments.

Pound Sterling Forecast: BoE Rate Decision to Provoke Exchange Rate Changes

Whilst Tuesday’s British Manufacturing and Industrial Production figures have the potential to provoke Sterling volatility, trader focus will be dominated by Thursday’s Band of England (BoE) interest rate decision. Whilst policymakers are not expected to shift on outlook at this juncture, the accompanying meeting minutes and closely followed press conference may be more insightful. Traders will be hoping to gauge the projected timing for a benchmark rate hike, although recent reports suggest that this will remain a long way off. In accordance with Credit Agricole; ‘A reiteration of the dovish language from the last inflation report as part of next Thursday’s BoE announcement could trigger fresh GBP-selling.’

Many analysts are predicting Euro weakness to persist in response to US Dollar strength as Fed rate hike bets improve. The prospect of widening policy divergence, especially after the ECB eased policy recently, is likely to weigh heavily on Euro demand. What’s more, if the Federal Reserve do indeed hike rates this month the US Dollar will likely strengthen or hold its current advantage. With EUR/USD negative correlation, US Dollar strength will cause Euro headwinds.

The Pound Sterling to Euro (GBP/EUR) exchange rate was trending within the range of 1.3873 to 1.3952 during Monday’s European session.

The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending within the range of 1.5053 to 1.5115.