- Pound Euro Recovery Fails – Pair drops back to 1.16 on Friday
- UK Retail Sales Impress – Pound briefly surges but ‘flash crash’ halts rally
- GBP Forecast: UK Growth Next Week – Q1 GDP projections due Thursday
- EUR Forecast: Eurozone PMIs Ahead – Euro to influence GBP EUR next week
While the Pound Euro exchange rate looked to end the week’s European session above its opening levels, it wasn’t by much. The pair trended in the region of 1.1630 at the time of writing and had not broken the key 1.17 level since before Thursday’s Sterling selloff.
Friday’s data was largely swept over. Ultimately, the Euro saw much stronger over the week that really held GBP EUR down from making any late-week recoveries.
Next week’s focus will be the Eurozone’s preliminary May PMIs. If they impress investors, the Pound Euro exchange rate is likely to fall further. If they disappoint it will be an opportunity for GBP EUR to recover again.
Britain’s growth projections are unlikely to inspire Pound movement unless they differ notably from the previous growth projection. As a result, Sterling’s advancement potential for the coming week is limited.
[Previously updated 12:59 BST 19/05/2017]
Despite spending most of Thursday’s European session trending in the region of 1.17, the Pound Euro exchange rate quickly plunged on Thursday evening due to a mysterious Pound ‘flash crash’.
While GBP EUR has remained above the week’s lowest levels, it has nonetheless fallen back down into the region of 1.16. At midday on Friday, the pair trended at around 1.1640.
Analysts have been unable to pin down exactly what caused Thursday night’s Pound drop, though some have speculated it was caused by the activation of automatic ‘stop-loss’ trades as Sterling passed notable key levels on Thursday.
[Published 06:00 BST 19/05/2017]
The Pound Euro exchange rate put in solid gains on Thursday thanks to a stronger-than-expected UK retail sales report from April. The Euro, which had been stronger earlier in the week, cooled on Thursday.
GBP EUR began the week trading at the level of 1.1788. The pair dropped to a low of 1.1613 on Wednesday, its lowest level since March, before recovering to around 1.1700 on Thursday.
Pound (GBP) Surges as Retail Sales Impress
British data published earlier in the week had largely been better-than-expected, but as concerns remained about Britain’s economic growth investors were left uninterested in the Pound.
Thursday’s data was strong enough to make markets more bullish however. Britain’s retail sales results were already projected to rise in April due to the timing of Easter this year, but they came in well above these expectations too.
Month-on-month retail sales jumped from -1.4% to 2.3%, surpassing the projected 1%. Yearly sales eclipsed the predicted 2.1% and doubled from 2% to 4%.
As well as Easter, warmer weather in April put consumers more in the mood to shop according to the Office for National Statistics (ONS).
The strong retail sales data eased concerns that Britain’s economy would slow due to the effects of inflation and slower wage growth on consumers.
However, analysts continue to expect that this pay squeeze is likely to affect retail activity and Britain’s economy in the coming months. According to James Smith from ING Bank;
‘To us, today’s data doesn’t change the underlying story, where the squeeze in household incomes is starting to weigh on consumer activity. This week’s surge in inflation (2.7%) and subdued wage growth (2.1%) means real incomes are now falling. It’s also worth noting that much of the strength in consumption over the past few months has been driven in no-small-part by higher borrowing and lower savings, which is unlikely to prove sustainable.’
Euro (EUR) Slips on Cautious European Central Bank (ECB)
Amid solid data and increased Eurozone political and economic confidence in markets over the last few weeks, the Euro has seen big gains and has been one of the most appealing major currencies.
Thursday’s Eurozone data was also solid, continuing this week’s optimistic trend.
France’s Q1 unemployment rate improved from 10% to 9.6%, the nation’s lowest unemployment figure since 2012.
As a result, markets are now putting more importance on new French President Emmanuel Macron’s first months in power. If France’s job market can find a positive trend, confidence in Macron may climb.
However, the Euro was held back slightly on Thursday by the European Central Bank’s (ECB) latest meeting minutes. The report detailed the caution the bank had taken in last month’s policy meeting.
ECB chief economist Peter Praet notably urged colleagues to be careful when discussing monetary policy, with specific mention of financial markets;
‘After a prolonged period of exceptional monetary policy accommodation, financial market participants were particularly sensitive to any perceived change in the future course of monetary policy. Any substantial change in communication needed to be motivated by some more evidence that the present indications of acceleration in activity found confirmation in hard data and fed through to a sustainable adjustment in inflation.’
Pound Euro Forecast: Can GBP EUR Recover on Friday?
With a lack of key UK or Eurozone data due for publication on Friday, it’s unlikely the pair will see a significant recovery. At this pace, the Pound Euro exchange rate is still likely to end the week below its opening levels.
While the Pound outlook has certainly improved because of Thursday’s UK data, GBP EUR remains weaker due to this week’s bullish Euro.
Friday will see the publication of relatively low-influence data, like CBI’s UK industrial trends figures. Friday’s Eurozone data includes consumer confidence survey results for May from The Netherlands and the Eurozone as a whole.
The Pound Euro exchange rate is unlikely to see its next significant movement until next week. Britain’s upcoming economic calendar will be relatively quiet so the Euro is more likely to drive GBP EUR trade.
Tuesday will see the publication of preliminary May PMIs for France, Germany and the Eurozone.
Private sector data is often a good indication of economic activity so this is likely to be highly influential for Pound Euro movement next week.