- Pound (GBP) rises after strong service sector growth
- Souring risk sentiment could limit gains
- Euro (EUR) falls after German retail sales tumble
- Eurozone inflation is due
The Pound Euro (GBP/EUR) exchange rate is rising after modest losses yesterday. The pair fell -0.08% in the previous session, settling on Thursday at €1.1582 and trading in a range between €1.1571 – €1.1616. At 09:00 UTC, GBP/EUR trades +0.26% at €1.1612.
The euro is falling after German retail sales tumbled in December and as investors look ahead to eurozone inflation data.
German retail sales fell -2.5% month on month in December after rising 1.1% in November. Analysts had expected a decline of just 0.1%. The sharp decline in retail sales highlights the struggles that households face amid record-high interest rates and as inflation ticks higher.
Data yesterday showed that consumer prices in Germany rose to 3.8% year on year up from 3.2% previously.
Attention will now turn to eurozone inflation figures, which economists expect to also rise to 2.9% year on year, up from 2.4% in November.
Hotter-than-expected eurozone inflation could raise doubts about the possibility of a March interest rate cut and could support the ECB’s view that interest rates will need to stay high for longer in order to tame inflation.
The pound is rising following data yesterday, which showed that the service sector, which is the dominant sector in the UK economy, grew at a faster pace than expected in 2023. The services PMI jumped to 53.9 in November and was well ahead of the preliminary reading as well.
Service sector inflation is something that the Bank of England will be keeping an eye on, and growth in the sector could add inflationary pressure, supporting the central bank’s views that interest rates will need to stay high for longer.
Meanwhile, the souring market mood could limit gains in sterling ahead of payroll data from the US later today, which will influence sentiment.
