The Euro to Pound (EUR/GBP) exchange rate trimmed the extensive gains recorded on Monday as investors rediscovered their interest in the British asset on the strength of better-than-forecast industrial output data.
Some initial Pound gains were inspired by the British Retail Consortium’s surprisingly strong Like-for-Like sales report.
The year-on-year increase of 1.3% was far higher than the annual gain of 0.3% forecast by economists and was indicative of renewed consumer demand. Although spending on food declined as the UK’s main supermarkets battled for supremacy, this was outweighed by a spike in sales of clothing.
According to BRC Director General Helen Dickinson; ‘August has recorded the strongest growth in retail sales since January this year, excluding Easter distortions, accelerating to 2.7%. This was driven in the main by the best growth of clothing and footwear since December 2011, indicating a higher level of consumer confidence in the economy. [However] the strength of the economy is not yet consistent across all areas of the country and shop prices fell in August.’
This comparatively upbeat report was followed by other positive UK news.
The pace of industrial output in the UK was shown to have expanded at its fastest pace for six months in July, registering a 0.5% month-on-month increase and a year-on-year rise of 1.7%. Both figures were better-than-expected.
Manufacturing production met forecasts for a month-on-month increase of 0.3% and a year-on-year rise of 2.2%.
The data gave the Pound a boost and saw the British currency advance on rivals like the Euro and US Dollar.
The Pound was also bolstered as UK politicians took action following yesterday’s Scottish referendum shock. With a YouGov poll showing that separatists have just edged ahead, pro-union policymakers have stepped up to try and prevent Scotland leaving the UK.
Meanwhile, the Euro was little-changed due to a lack of notable economic news for the Eurozone, although a report published this morning showed that the French trade deficit widened by more than anticipated.
However, Sterling’s gains were a little limited as industry experts cut their forecast for Bank of England interest rate hikes and bet that the Pound could tumble if Scotland’s bid for independence was successful.
The Euro to GBP exchange rate hit a high of 0.8013.
The Euro to US Dollar exchange rate was trending in a narrow range as investors focused on the week’s biggest reports for the Eurozone and US: German CPI (due out on Thursday) and US advance retail sales (scheduled for publication on Friday).
If the German CPI disappoints, or if the US sales data particularly impresses, the EUR/USD exchange rate could rally before the end of the week.
Further Euro to USD movement could be caused by US Initial and Continuous jobless claims numbers and the European Central Bank’s monthly report.
The EUR/USD pairing hit a low of 1.2894.
The EUR/USD exchange rate fluctuated before steadying to trade in the region of 1.2906.
Euro to GBP Exchange Rate Forecast
With the week’s main UK reports now released, movement in the EUR/GBP pairing will most likely be driven by data from the Eurozone and increased speculation surrounding the Scottish referendum.
That being said, several instrumental members of the Bank of England (including Governor Mark Carney) are due to deliver a testimony on the August inflation report tomorrow.
If the central bank officials intimate that the first increase in UK interest rates could be delayed to next spring or beyond the Pound could come under pressure.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.8004
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2489
UPDATE
With economic data for both the UK and Eurozone lacking today, the Euro to Pound (EUR/GBP) exchange rate has been trending in a narrow range.
The Euro was ever so slightly stronger against its British peer in spite of last week’s surprising European Central Bank announcement, which saw the financial body unleash a wave of fresh stimulus measures.
Scottish refferendum worries kept the Pound under pressure even as the level of industrial production in the UK was shown to have risen to a six-month high.
However, the EUR/USD exchange rate drifted lower during the European session as investors bet that the Federal Reserve might be pursuaded to bring forward its timeline for raising interest rates.
The next report likely to trigger Euro movement will be tomorrow’s German Consumer Price Inflation. An unexpected result could inspire EUR/GBP and EUR/USD exchange rate fluctuations.
UPDATE 2
The Euro was little moved against the Pound on Friday as traders shrugged off the release of data, which showed that UK Construction Output was flat in July at 0.0%, below expectations for a rise of 0.7%. The pound remained mildly supported after a new opinion poll on Scottish independence released on Wednesday showed that support for the no campaign was back in the lead with 53% of voters.
The single currency meanwhile remains under pressure from last week’s decision by the European Central Bank to cut interest rates to a new low and economic data, which highlights the weakness in the currency bloc.
The Euro is forecast to remain under pressure over the weekend, as traders grow cautious after the EU announced new sanctions against Russia.
