The British pound is down against the euro on Thursday as markets reacted to a batch of economic data from the United Kingdom and the Eurozone including German inflation and UK retail sales. More broadly stock markets in the UK and Europe were mixed in reaction to new stimulus measure in China.
For a second day running the pound is falling against the euro in response to better than expected economic data in the United Kingdom, counter to the normal logic. The monthly reading for UK retail sales was the best since May 2018 but it was unable to overcome bearish sentiment towards Sterling. UK retail sales rose 0.9% month-over-month, higher than the 0.7% expected and a big rebound from the -0.5% contraction in December.
Lingering uncertainty over future UK-EU relations continues to be a burden on the pound and has prevented traders pushing the exchange rate against the euro further into multi-year highs.
European Union officials are trying to agree a budget for themselves, all the while trying to put together a negotiating approach for a trade deal with the UK. The EU is still set in demanding regulatory alignment from the United Kingdom in order to keep a so-called “level playing field”. The EU is saying that the United Kingdom would need stricter adherence to EU regulations than those applied to Canada in a “Canada-style” free trade agreement.
Economic data from the Euro-area was generally favourable on Thursday. German Finance Minister Scholz said he saw no signs of Germany entering recession and his ministry maintains its 2020 GDP forecast of 1.1% despite the risks from the coronavirus.
German consumers seem a little more optimistic than investors. Data today showed German consumer confidence fall only slightly to 9.8 from 9.9 previously. Meanwhile, producer prices rose 0.8%, up from 0.1% previously- matching a similar rise in the United States yesterday.