‘Brexit’ worries are continuing to weigh on the Pound (GBP) ahead of the weekend as European leaders debate proposed reforms to the UK’s relationship with the EU.
Pound Sterling (GBP) Softens as ‘Brexit’ Fears Counteract Stronger UK Retail Sales Figures
Although the January Retail Sales and Public Sector Net Borrowing figures proved decidedly bullish this has failed to particularly shore up the Pound (GBP) today. Retail sales in particular strongly bettered expectations to leap from -1.3% to 2.3% on the month, while also accelerating 5.2% on the year. Consumer demand evidently recovered sharply from the more disappointing December retail period, suggesting that confidence within the domestic economy had strengthened at the beginning of the year.
The impact of this more positive data has been limited, however, as investors remain preoccupied with the negotiations currently underway in Brussels. There are growing concerns that Prime Minister David Cameron may fail to secure sufficient agreement to proposed reforms at this time, putting the timing of a potential June referendum in jeopardy. Thus, with ‘Brexit’ worries likely to continue weighing on the UK economy for some time to come, the appeal of the Pound has remained relatively muted.
Euro (EUR) Exchange Rate Strengthens Despite Growing Likelihood of ECB Easing
The Euro (EUR), meanwhile, has been on stronger form ahead of the weekend in spite of unimpressive German Producer Price data. Contracting further than expected, prices declined from -2.3% to -2.4% on the year to suggest that the Eurozone’s powerhouse economy is continuing to struggle. This weaker showing does not bode well for hopes of an increase in domestic inflation, adding further pressure to the European Central Bank (ECB) to loosen monetary policy in March.
Following the more dovish minutes of the January policy meeting, the ECB appears to be on the verge of implementing additional easing, although the question does remain as to whether markets have overpriced the extent and impact of any upcoming measures. With the finalised February Eurozone Consumer Confidence forecast to show a further deterioration in domestic sentiment the case for loosening is likely to continue building, potentially denting the single currency.
US Dollar Currency News: USD Trends Higher in Anticipation of Rising Inflation
While the outlook of the Fed remains on a dovish bias, as revealed in the latest Federal Open Market Committee (FOMC) meeting minutes, the US Dollar (USD) has nevertheless been making gains against rivals. Stronger domestic data has prevented the appeal of the ‘Greenback’ from diminishing as the latest Philadelphia Fed manufacturing survey and Leading Indicators figures demonstrated improvement. With the fundamentals of the world’s largest economy still showing signs of robustness investors have continued to pile into the safe-haven currency.
Pundits are confident ahead of the January Consumer Price Index report, with expectations of a strong uptick from 0.7% to 1.3% in annual inflation. Rising inflationary pressure would increase the likelihood of the Fed resuming its course of monetary tightening sooner rather than later, a prospect that would shore up the ‘Greenback’ further.
Current GBP, EUR, USD Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending lower at 1.2851, while the Pound Sterling to US Dollar (GBP/USD) pairing was slumped around 1.4279. Meanwhile, the Euro to US Dollar (EUR/USD) exchange rate was trending narrowly in the region of 1.1110.
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