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Pound Euro (GBP/EUR) Exchange Rate Makes Modest Gains on Euro Sell-Off

May 9, 2018 - Written by John Cameron

Pound (GBP) Exchange Rates Climb despite Falling UK Retail Sales

The Pound Euro (GBP/EUR) exchange rate made some modest gains on Wednesday, climbing despite a sharp fall in UK retail sales in April and effectively capitalising on the current EUR/USD sell-off.

According to the British Retail Consortium (BRC) UK retail sales fell by -3.1% last month; their sharpest drop in business in over two decades, with bad weather and the squeeze on household budgets taking a substantial bite out of consumer spending.

This news seemed to indicate a slowdown in the economy since the turn of the year.

‘April’s figures show retail sales growth falling off a cliff,’ said Paul Martin, Head of Retail at KPMG.

‘The three-month average is more helpful to assess, but this too points to sales only growing modestly – these are indeed testing times for retailers’, he added.

Nonetheless, Sterling proved remarkably resilient, supported perhaps by yesterday’s lower-than-expected UK trade deficit result and the Euro’s own ongoing struggle against the ‘Greenback’.

Euro (EUR) Exchange Rates Limited by Political Turmoil in Italy and a Rallying USD

The Euro (EUR) continued to encounter pressure on Wednesday, limited by political turmoil in Italy and the current dovishness of the European Central Bank (ECB).

In Italy, the three largest parties have consistently failed to reach a coalition agreement since the general election in March, with the President Sergio Mattarella now asserting that voters either return to the polls or agree to neutral governance until the end of the year.

The Five Star Movement and The League have both opted for a second round of elections, prompting anxiety amongst Euro investors due to concerns that it will once again fail to break the political deadlock and also delay the country’s 2019 budget decision.

In other news, the current strength of the US Dollar (USD) has kept the Euro weak, with both the US Federal Reserve and the Bank of England (BoE) deemed the more hawkish options compared to the European Central Bank (ECB).

Pound Euro (GBP/EUR) Exchange Rate Forecast: Super Thursday in the Spotlight

The outlook for the Pound Euro (GBP/EUR) is rather mixed at the present, with tomorrow’s highly anticipated BoE rate decision expected to cause volatility amongst the markets.

Analysts no longer expect the Monetary Policy Committee (MPC) to vote for a rate hike on this occasion, with the subpar Q1 GDP growth and poor PMI readings painting a fragile picture of the UK economy at the start of 2018.

The focus then, will be on the accompanying statement, press conference and revised growth readings, with any indication of optimism, or positivity liable to give Sterling a small shot in the arm.

In this regard the central bank could play things in a rather balanced manner, perhaps acknowledging that inflation remains high, unemployment; low and wage growth; accelerated - whilst still opting for caution.

This would make sense given the fact that they have repeatedly provided hawkish forward guidance in recent months.
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