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EUR to GBP Exchange Rate Drops as UK Retail Sales Impress

September 20, 2017 - Written by David Woodsmith

While recent Eurozone data has been relatively optimistic, the Euro has been unable to hold its ground due to increased market hawkishness on the Pound. The Euro to British Pound exchange rate has fallen due to strong UK retail sales data today.

Last week’s huge EUR/GBP drop from 0.9120 to 0.8789 was caused by Bank of England (BoE) news. The pair recovered to around 0.8891 on Tuesday, but Wednesday saw the pair drop again.

Strong EUR Struggles to Hold Ground


Investors have been selling the strong Euro in recent sessions. A lack of fresh reasons to buy up the already overvalued shared currency, as well as uncertainty about the European Central Bank’s (ECB) policy outlook, have left it less appealing.

Markets widely expect the ECB will soon announce plans to lighten its quantitative easing (QE) scheme.

However, due to the strength of the Euro and subdued inflationary pressure in the Eurozone, the bank is hesitant to hint that interest rates could be tightened too in the foreseeable future.

If Eurozone interest rates are likely to remain at their lowest levels on record, there is little reason for investors to keep buying the Euro.

The shared currency has been supported slightly by strong Eurozone ecostats in recent sessions though, keeping the currency from falling too far against a strengthening Pound.

On Tuesday, ZEW’s economic sentiment surveys from September were generally impressive. The Eurozone print failed to improve to the forecast 32.4 but still advanced from 29.3 to 31.7.
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ZEW’s German figures were more impressive. German economic sentiment jumped from 10 to 17 and beat 12.5 forecasts, while current conditions improved from 86.7 to 87.9 rather than falling to 86.6 as expected.

Wednesday’s Eurozone data, while low influence, was impressive too. Germany’s August PPI beat expectations in both yearly and monthly prints.

GBP Strengthens as UK Retail Sales Beat Expectations


Sterling slipped from its weekend highs on Monday and Tuesday due to market uncertainty about how hawkish the Bank of England (BoE) could really become in the coming months, but the British currency was boosted in Wednesday trade.

Wednesday saw the publication of Britain’s August retail sales results, which came in well above expectations in all major prints.

Year-on-year retail sales improved from a revised 1.4% to 2.4%, beating expectations that they would slow from 1.3% to 1.1%. The monthly figure beat 0.2% forecasts and jumped from 0.6% to 1%.

Retail sales excluding fuel was impressive too, coming in at 2.8% year-on-year and 1% month-on-month.

According to the Office for National Statistics (ONS) report, this was largely due to stronger demand for non-essential items;

‘Compared with August 2016, the quantity bought increased by 2.4%; the 52nd consecutive month of year-on-year increase in retail sales.

Year-on-year contribution of food stores remains flat whilst there was a fall in the contribution of growth within petrol stations, showing that contributions to the overall growth came from non-essential items.’


Analysts suggested the stronger retail sales report would give the Bank of England (BoE) even more reason to hike UK interest rates within the foreseeable future. As a result, Sterling has stayed relatively appealing.

EUR/GBP Forecast: Friday’s Session in Focus


While Thursday’s Eurozone consumer confidence report could inspire some Euro trade, EUR/GBP exchange rate traders are more likely to wait for Friday’s key session before making their next big movements.

Friday will see the publication of Markit’s preliminary September PMIs for the Eurozone. As always, Germany’s manufacturing print and the overall Eurozone stats will be the most influential.

Analysts currently expect the Eurozone economy to have remained strong so far in September, following on from strong performance in August.

The Netherlands’ final Q2 Gross Domestic Product (GDP) report will also come in on Friday.

As for the Pound, UK Prime Minister Theresa May will be holding a Brexit speech at the end of the week which could prove highly influential.

If the UK government shows any indication of having changed its stance on ‘hard Brexit’, this could have a direct influence on the Pound and drive some late-week EUR/GBP movement.
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