- Pound (GBP) fell last week after soft retail sales data
- UK services & manufacturing PMI in focus
- Euro (EUR) gained despite falling consumer sentiment
- Eurozone PMI data due
The Pound Euro (GBP/EUR) exchange rate is heading higher at the start oft he week, paring losses from last week. The pair dropped 0.2% across last week, settling on Friday at €1.1943 after reaching a fresh almost two year high earlier in the week of €1.2043. This was the first week that the pound has fallen versus the Euro after 6 weeks of gains. At 05:45 UTC, GBP/EUR trades +0.13% at €1.1966.
The pound fell steeply on Friday following weaker than expected UK retail sales. Retail sales dropped in December as COVID 19 infections spread across the UK and new restrictions were imposed impacting sales of fuel clothing and sports equipment.
According to the Office of National Statistics, British retail sales dropped -3.7% month on month in December. This was significantly larger than the -0.6% fall expected by analysts and came after 1% growth in sales in November.
Plan B covid restrictions, imposing a work from home order has now been reversed by the government so the impact should be contained and short lived. However, that didn’t prevent the selloff on Friday.
Today, manufacturing and service sector activity will be in focus as measured by the PMI index. Service sector activity slowed in December, like retail sales, owing to Omicron. However, activity remained firmly above 50, the level that separates expansion from contraction. Activity in the UK’s dominant sector is expected to pick up again in January.
The Euro rose on Friday, supported by a weaker US Dollar and despite a consumer confidence deteriorating in the bloc. Eurozone consumer morale ticked lower to -8.5 in January, down from -8.4 but still ahead of the -9 that was forecast. Rising Omicron cases, in addition to surging inflation damped sentiment.
Today attention will turn to Eurozone business activity. Expectations are for activity to have slowed in January to 52.6 down from 53.3. This would still be in expansion territory.