Pound Drops vs. Euro on Brexit Fears & Weak Manufacturing Data

The pound ticked lower versus the euro, despite stronger than expected retail sales data and weaker German consumer confidence figures. The pound euro exchange rate dropped to a low of €1.1882 before picking up into the close. GBP/EUR closed the session just 0.1% lower at €1.1940.

Pound Dips Despite Strong Retail Sales

UK retail sales jumped 0.9% in January compared to the month earlier, rebounding strongly from -0.8% decline in December and ahead of expectations of 0.8%. This was the strongest monthly reading since March. Underlying sales, which strips out more volatile items such as fuel, increased an impressive 1.6%, more than making up for December’s -0.8% decline in underlying sales.

Retail sales data is just the latest of a slew of upbeat data this week. UK wages topped pre-financial crisis levels, inflation ticked closer to the Bank of England’s 2% target and retail sales showed that consumers are spending. The Boris bounce appears to be making its way through the economy. Yet investors remained cautious as the outlook for sales remains weak. The very wet February weather, in addition to the effects of coronavirus hurting sales in areas frequented by Chinese tourists.

Today there is a chance that the good run of data could come to an end as the manufacturing, service sector and composite PMI readings. Whilst analysts are expecting the service sector to remain resilient in February. However, manufacturing activity is due to slip back into contraction after stagnation in January.

German PMI Data To Disappoint?

PMI data will also be in focus today for euro investors. Particular attention will be paid to German manufacturing pmi which analysts expect to show has slipped deeper into contraction, dropping to 44.8. The exporter nation depends heavily on sales to China. This could be the first month that the impact of the coronavirus outbreak becomes apparent, especially as PMI data is forward looking, capturing sentiment of the moment. A drop to 44.8 almost seems too optimistic.

France’s services PMI is the only figure that analysts expect to show an increase, albeit just a small one from 51 to 51.3.

Later in the session investors will look to eurozone inflation figures. Analysts are expecting a 1% decline month on month in January.

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