Plunge in German Retail Sales Fuels Pound Euro Exchange Rate Gains
A sharper-than-expected decline in German retail sales helped to shore up the Pound to Euro (GBP/EUR) exchange rate at the start of the week.
While forecasts had pointed towards a decline in the wake of November’s 1.1% growth investors were caught off guard by the ultimate extent of the slump.
As sales plunged -9.6% on the month in December, in spite of the holiday season, this stoked fresh anxiety over the outlook of the Eurozone’s powerhouse economy.
With Germany looking set to experience further disruption over the coming months thanks to ongoing social restrictions the mood towards the Euro (EUR) naturally soured in the wake of the data.
Although the Eurozone unemployment rate held steady at 8.3% in December this was not enough to keep EUR exchange rates from slumping.
Euro Vulnerable to Sharp Decline in Eurozone Gross Domestic Product
Further weakness could be in store for the Euro on Tuesday with the release of the fourth quarter Eurozone gross domestic product report.
Markets expect to see confirmation that the currency union experienced a fresh economic contraction in the final months of 2020, raising the odds of a double-dip recession.
If growth drops -1.1% on the quarter as forecasts suggest this could see EUR exchange rates shedding further ground across the board.
As long as the Eurozone economy appears at risk of suffering a fresh loss of momentum, reversing the beginnings of a recovery seen in the summer, the appeal of the Euro looks set to weaken.
On the other hand, if growth proves more resilient than forecast in the fourth quarter this could offer EUR exchange rates a potential rallying point.
A smaller quarterly contraction could encourage hopes of a first quarter recovery, limiting the potential for Euro losses.
Finalised UK Services PMI Set to Weigh on Pound Demand
January’s finalised UK services PMI may put some fresh pressure on the GBP/EUR exchange rate, meanwhile.
Confirmation that the service sector experienced a major contraction at the start of the year could encourage investors to pile out of the Pound once again.
Unless the PMI sees any positive revision the Pound looks set to lose some of its footing on Wednesday.
Further volatility for the GBP/EUR exchange rate looks likely on the back of the Bank of England’s (BoE) policy announcement.
If policymakers express greater anxiety over the outlook of the UK economy this could leave the Pound vulnerable to a fresh bout of selling pressure.
However, if the central bank appears less willing to consider loosening monetary policy further in the months ahead this could help the Pound to Euro exchange rate hold onto a positive footing.
Comments are closed.