Euro holds losses against British Pound despite stronger Germanys’ Retail Sales data
- EUR/GBP softens to near 0.8605 in Tuesday’s early European session.
- Germany’s Retail Sales climbed by 1.8% YoY in May, stronger than expected.
- Traders weighed comments from the UK's Andy Burnham about a series of fiscal rules.
The EUR/GBP cross trades in negative territory around 0.8605 during the early European trading hours on Tuesday. The Euro (EUR) remains weak against the British Pound (GBP) despite the upbeat Germany’s Retail Sales data. Traders will take more cues from the preliminary reading of Germany’s Harmonized Index of Consumer Prices (HICP) for June, which is due later on Tuesday.
Data released by Destatis on Tuesday showed that Germany’s Retail Sales, a key measure of consumer spending, jumped 1.8% year-on-year (YoY) in May, versus a fall of 0.6% prior (revised from -0.3%). This figure came in better than the market expectation of 0%.
On a monthly basis, the consumer spending measure rose 1.1% in May, compared to a 0.4% decline in April (revised from -0.3%), stronger than the forecast of -0.1%.
Markets have pared expectations for future rate hikes from the European Central Bank (ECB) this year as energy prices retreat. Oxford Economics and Capital Economics expect the ECB won’t raise the interest rates further, though traders are still pricing one more quarter-point move, which would bring the deposit rate to 2.50%.
UK’s likely next Prime Minister vowed on Monday to deliver radical change to the nation's politics by handing more power to its regions and by encouraging collaboration over argument in a 10-year mission to spur "good" growth. Traders will closely monitor the choice for finance minister, which could prove crucial to the outlook for both the pound and the gilt market. Burnham said any economic plans would be "backed by discipline" and abide by current fiscal rules.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro 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 then its currency will gain in value 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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