Pound Euro (GBP/EUR) Exchange Rate News: GBP Rallies as UK Retail Data Exceeds Expectations

November 18, 2022 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate News: GBP Rallies as UK Retail Data Exceeds Expectations

Pound Euro (GBP/EUR) Exchange Rate Rallies as UK Retail Beats Forecasts

The Pound Euro Exchange Rate (GBP/EUR) enjoyed gains on Friday, as UK retail sales and consumer confidence data both printed above forecasts.

The data prompted the GBP/EUR pairing to rally to around €1.1493 at the time of writing, an increase of roughly 0.4% from Friday’s opening rates.

Pound (GBP) Rallies as UK Retail Shows Signs of Recovering

The Pound (GBP) strengthened on Friday, as UK retail data showcased an improvement in both MoM sales, as well as consumer confidence.

Sales are definitively still below pre-pandemic levels, but Friday’s data release showed a recovery from a revised figure of -1.5% in September, to 0.6% in October. This exceeded the forecast of a 0.3% increase, and combined with a minor uptick from -47 to -44 in consumer confidence to boost Sterling during Friday’s session.

However, despite the positivity afforded by the data, it seemed likely that the uptick was a rebound from abnormally weak data in September.

This was explained further by Darren Morgan, The ONS Director of Economic Statistics. He stated: ‘Retail sales increased in October, although this is likely a rebound effect after weak sales last month as many retailers closed or operated different on the extra bank holiday for the Queen’s funeral. Looking at the broader picture, retail sales continue their downward trend seen since summer 2021.’


Furthermore, Sterling’s gains may have been capped by Thursday’s official confirmation that the UK had entered a recession. The Office for Budget Responsibility (OBR) forecast that the UK had entered a recession which may last for up to a year, and expects UK living standards to fall by 7%.

Euro (EUR) Mixed amid Market Return to Risk-On Trade

The Euro (EUR) endured mixed trade on Friday, as market sentiment shifted towards risk appetite. As such, the single currency largely traded on market forces.

Underpinning the Euro was comments made by European Central Bank Christine Lagarde. She continued the ECB’s hawkish sentiment towards inflation within the Eurozone, stating that they would continue to increase interest rates to prevent inflation becoming entrenched.

President Lagarde stated: ‘We expect to raise rates further – and withdrawing accommodation may not be enough. Interest rates are, and will remain, the main tool for adjusting our policy stance. Acknowledging that interest rates remain the most effective tool for shaping our policy stance, it is appropriate that the balance sheet is normalised in a measured and predictable way. The ECB will ensure that a phase of high inflation does not feed into inflation expectations, allowing too-high inflation to become entrenched.’

As such, investors supported the Euro in a modest capacity on the back of these comments, as large rate hikes seemed secure.

However, President Lagarde also made these claims at the expense of the Eurozone’s already struggling economy, opting to continue tightening despite the risk of a recession. This attitude may have served to cap EUR’s gains on Friday.

Pound Euro (GBP/EUR) Exchange Rate Forecast: UK Private Sector Downturn to Weigh on Sterling?

Looking to next week for the Pound Euro (GBP/EUR) exchange rate, the core catalyst of movement for GBP may come from flash PMIs on Wednesday. Services and Manufacturing PMI flashes are expected to show falls, which may weaken Sterling by contributing to fears about the extent of the UK’s recession.

For the Euro, Monday brings the latest German PPI figures. A drop from 2.3% to 0.9% is expected, so if the bloc’s largest economy acts as a synecdoche for the wider economy, this could reduce rate hike bets from the ECB, leaving EUR to slip.

Elsewhere, continuing developments in the Ukraine-Russia conflict may also weigh on the pairing. If the conflict continues to deepen, EUR may weaken as it continues to strain the EU’s economy.

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TAGS: Pound Euro Forecasts