While October’s UK retail sales data was rather mixed in nature this did not prevent the Pound Euro exchange rate from rallying ahead of the weekend.
Markets were encouraged to find that sales had rebounded solidly on the month, even as the annual figure showed its first contraction since March 2013.
After a week of disappointing UK data this was enough to bolster the appeal of Sterling, encouraging GBP exchange rates to trend higher across the board.
However, the Pound remains vulnerable to political pressures in the coming days as markets await the latest Budget announcement and further developments surrounding Brexit.
As analysts at ANZ noted:
‘The UK Budget (22 Nov) may deliver some expansionary fiscal policies, with the prospect of somewhat stronger growth ahead potentially providing some momentum for sterling. But it’s the progress in the Brexit talks that will determine direction. The EU wants to see sufficient commitments from the UK by Friday (24 Nov); otherwise, any trade talk could be postponed to March next year (at best). Whichever way it goes, one should brace for higher volatility.’
Unless there are signs that the UK and EU are moving closer to some manner of agreement on the terms of exit the GBP EUR exchange rate is likely to remain biased to the downside.
ECB’s Neutral Outlook Limits Euro Exchange Rate Upside
Although the Eurozone current account surplus widened further than forecast in September, rising from 33.3 billion to 37.8 billion, this failed to shore up EUR exchange rates.
The Euro struggled to regain its earlier bullishness in the wake of Thursday’s inflation data, with signs seeming to point towards the European Central Bank (ECB) maintaining its neutral policy outlook for longer.
Even the optimistic nature of ECB President Mario Draghi’s latest comments on the robust health of the Eurozone’s labour market was not enough to dent the GBP EUR exchange rate uptrend.
Confidence in the single currency is likely to remain limited in the near term, with investors expecting another set of dovish ECB meeting minutes on Thursday.
However, if the tone of discussions proves a little more hawkish in nature this could encourage the Euro to return to a stronger footing once again.
November’s raft of Eurozone manufacturing and services PMIs will also be in focus, although forecasts point towards a slight dip in economic growth.
While a loss of momentum may undermine the appeal of the Euro, however, the currency union is likely to remain on track for its strongest year of growth in a decade.
Current GBP EUR Interbank Exchange Rates
At the time of writing, the Pound Euro exchange rate was trending higher in the region of 1.1234. Meanwhile, the Euro Pound exchange rate was slumped around 0.8900.
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