EUR/GBP softens to near 0.8700 ahead of Eurozone Consumer Confidence release
- EUR/GBP weakens to around 0.8710 in Monday’s early European session.
- The BoE’s cautious stance and upbeat UK Retail Sales boost the Pound Sterling.
- Traders await the preliminary reading of Eurozone Consumer Confidence data later on Monday ahead of Eurozone, German HCOB PMI reports.
The EUR/GBP cross loses traction near 0.8710 during the early European trading hours on Monday. The Pound Sterling (GBP) edges higher against the Euro (EUR) after the Bank of England (BoE) opted for caution with a steady hold at its September meeting. The preliminary reading of Eurozone Consumer Confidence for September is due later on Monday.
As widely expected, the Bank of England's (BoE) Monetary Policy Committee (MPC) held the interest rate at 4.0% during its September policy meeting. The decision came after the UK central bank last reduced the key interest rate by 25 basis points (bps) in August. The BoE reiterated that a "gradual and careful" further withdrawal of monetary policy restraint remains appropriate, which provides some support to the GBP and creates a headwind for the cross.
Additionally, the upbeat UK Retail Sales contribute to the GBP’s upside. The UK Retail Sales rose 0.5% MoM in August versus 0.5% prior (revised from 0.6%), the Office for National Statistics (ONS) showed Friday. This figure came in above the market consensus of a 0.4% rise. The core Retail Sales, stripping the auto motor fuel sales, climbed 0.8% MoM in August, compared to the previous reading of 0.4% (revised from 0.5%) and the expected 0.3% growth.
The European Central Bank (ECB) kept the key interest rates steady at its September meeting. The ECB will maintain its data-dependent, meeting-by-meeting approach to monetary policy. The preliminary reading of the HCOB Purchasing Managers Index (PMI) for September from the Eurozone and Germany will be released on Tuesday. If the reports show a stronger-than-expected outcome, this could help limit the shared currency’s losses in the near term.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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