GBP/EUR: Will German Retail Data Help Lift The Euro?

The British pound is little changed against the euro after a shock decline in UK retail sales in December saw the British currency fall from its highs of the day. Soft inflation data from the Eurozone limited the declines. More broadly, equity markets in the UK and Europe were higher following upbeat growth statistics in China.

GBP/EUR was flat at 1.1739 as of 1pm GMT, setting up the currency pair to close to its highs for the week.

The pound

Sterling started the day with a positive tone against the euro, following the upward trend of the past week but fortunes quickly reversed after a surprise decline in UK retail sales in December. Data from the UK’s Office for National Statistics (ONS) reported sales in the retail sector fell by -0.6% in December, falling well short of expectations of a 0.7% rise.

It is the sixth monthly retail sales decline in a row, the longest stretch of declines since the agency started reporting the statistics in 1996. Economists had been expecting a rebound after an equally disastrous November when retail sales dropped -0.8%.

While monthly data often reverts to the mean following a big monthly change, there were extenuating circumstances in the UK during December. For the first time since 1923, the UK was holding a general election to choose its next government in the month of December. It is possible that British consumers held back on purchasing big-ticket items as political uncertainty increased.

The election notwithstanding, the prolonged period of retail weakness in the United Kingdom has clearly caught the attention of policymakers at the Bank of England. Consumption makes up two-thirds of the British economy, which does not bode well for fourth-quarter GDP. The retail sales data, in combination with the slower inflation reported earlier this week increases the chance that interest rates come down this year in the United Kingdom.

The euro

The euro gained no benefit from data showing consumer prices rose at a pace well-below the target of the European Central Bank. December CPI for the Eurozone grew 1.3% year-over-year, as expected an equal to the previous release.


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