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GBP/EUR Exchange Rate Falls as Retail Sales Disappoint

January 22, 2021 - Written by John Cameron

The GBP/EUR exchange rate dived this morning on disappointing retail sales data and the UK Services PMI hitting an 8-month low.

The pair is currently trading at around 1.2381.

Pound (GBP) Slips on Back of Data Releases

The Pound lost its footing this morning as disappointing data releases scuppered Sterling movement.

Although retail sales managed to edge to 0.3% in December from a -4.1% contraction in November, the figures missed the 1.2% forecast entirely.

The figures worried investors as the growth, albeit small, showed that despite being out of lockdown shoppers couldn’t be drawn to spend money, sparking concern for the economy.

Furthermore, the UK Services PMI fell sharply to 38.8 points in January, down from 49.4 in December.

Chris Williamson, Chief Business Economist at IHS Markit, said:

‘A steep slump in business activity in January puts the locked down UK economy on course to contract sharply in the first quarter of 2021, meaning a double-dip recession is on the cards.’

‘Services have once again been especially hard hit, but manufacturing has seen growth almost stall, blamed on a cocktail of Covid-19 and Brexit, which has led to increasingly widespread supply delays, rising costs and falling exports.’

Euro (EUR) Gains as Composite PMI Hints that Economy is Coping with Coronavirus

The Euro climbed higher this morning despite its own disappointing composite PMI data.

The Eurozone composite PMI fell from 49.1 in December to 47.5 in January, which is a third successive monthly decline indicating business activity continues to struggle across the Eurozone.

However, in support of the Euro, the last three months have seen composite PMI data remain higher than during the first wave of the coronavirus pandemic and while services contracted, manufacturing is indicating growth, although slowing slightly on the previous month

Figures hint that businesses are dealing with the second wave of the pandemic better than the first, and the economic impact is therefore less severe.

Chris Williamson of HIS Markit commented on the data, saying that:

‘Some encouragement comes from the downturn being less severe than in the spring of last year, reflecting the ongoing relative resilience of manufacturing, rising demand for exported goods and the lockdown measures having been less stringent on average than last year.

‘There are also some signs that companies and households are finding ways to adapt behaviour to the pandemic and its associated restrictions.’

Pound to Euro Exchange Rate Outlook: Coronavirus Developments could Push Sterling Down

Pound investors will be focused on any coronavirus developments within the next few days, with Boris Johnson expected to lead a press conference at 5pm this afternoon, traders will be monitoring whether any further restrictions will be imposed.

Euro traders will also be keeping an eye on their own coronavirus developments, with the Eurozone’s largest economy, Germany now recording over 50,000 coronavirus deaths further restrictions could be introduced to tackle infections and increase vaccine rollouts.

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