Pound Sterling Struggles Against Euro and Dollar After Flawed UK Retail Sales

Modified: Friday, 5 September 2025 13:47 BST - Written by David Woodsmith

STORY LINK Pound Sterling Struggles Against Euro and Dollar After Flawed UK Retail Sales

The Pound Sterling saw a mixed reaction against the Euro and Dollar after Friday's UK retail sales data release, with GBP/EUR stuck near 1.1530 and GBP/USD edging over 1.35.

While sales beat expectations, heavy revisions and accuracy concerns kept sentiment cautious.

According to ING, GBP/EUR is more likely to trade below 1.15 than break above 1.1630 into the November budget, highlighting persistent fiscal and political headwinds for Sterling.

GBP/EUR Recovery Stalls After Retail Sales Data

The Pound to Euro (GBP/EUR) exchange rate has not been able to extend the recovery and traded around 1.1530 on Friday after failing to move above 1.1550.

GBP/EUR remains well below key resistance around 1.1630 while with position adjustment potentially significant ahead of Monday’s French no-confidence vote.

Looking at UK and French credit spreads, Credit Agricole considers that the Pound is undervalued and noted; “This could mean that the oversold GBP could consolidate in the very near term.”

GBP/USD Outlook: Dollar, Jobs Data in Focus

The Pound to Dollar (GBP/USD) exchange rate edged higher to 1.3465 with the latest US jobs data set to trigger fresh volatility in US trading.

Slightly stronger than expected UK retail sales data failed to support the Pound, especially with fears over data accuracy while the Euro was resilient despite much weaker than expected German factory orders data for July.

The UK 30-year bond yield retreated to 1-week lows below 5.60% which provided only limited Pound support.

According to the ONS, UK retail sales volumes increased 0.6% for July compared with consensus forecasts of a 0.3% gain, but the June increase was revised down to 0.3% from the initial reading of 0.9% due to data errors.

Sales declined 0.6% in the three months to July compared with the previous three months.

According to the ONS, “Non-store retailers and clothing stores sales volumes grew strongly in July 2025, which retailers attributed to new products, good weather, and an increase resulting from the UEFA Women’s EURO 2025 tournament.”

The sales data was delayed by errors to seasonal adjustment and there were significant revisions to the previous figures, especially for January and June.

EY ITEM chief economic advisor Club Matt Swannell commented; “The new profile looks more credible, but it’s hard to have much confidence in the data when such fundamental errors have been made, and the revisions are so significant.”

Halifax reported that UK house prices increased 0.3% after a 0.4% previously. The annual increase slowed to 2.2% from 2.5%, but prices did post a fresh record high.

According to Amanda Bryden, head of mortgages at Halifax; “Affordability remains a challenge, but there are signs of improvement. Interest rates have been on a gradual downward path for nearly two years, and many of the most competitive fixed-rate mortgage deals now offer rates below 4%.”

As far as the Euro is concerned, there are strong expectations that ECB interest rates will be unchanged next week with the deposit rate held at 2.0%.

In the near term, the main focus will be political with the French no-confidence vote on Monday.

ING commented; “Expectations are for the French parliament to vote down Prime Minister Francois Bayrou on Monday, with a realistic scenario afterwards for President Emmanuel Macron choosing a new centrist or centre-right prime minister to deliver a watered-down fiscal consolidation package.”

It added; “Political uncertainty is set to remain elevated through this process, but we aren’t sure that’s enough to trigger any uncontrolled OAT swings and, by extension, significant pressure on the euro as the no-confidence outcome appears largely priced in.”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts Pound Euro Forecasts