GBP/USD: Pound At 2 Month High vs Dollar On Brexit & Retail Sales
  • Pound (GBP) slumps after two days of gains
  • Retail sales drop 3.2% MoM
  • Euro (EUR) rises despite falling German PPI
  • ECB rate decision next week

The Pound Euro (GBP/EUR) exchange rate is falling after two days of gains. The pair rose +0.30% in the previous session, settling on Wednesday at €1.1680 and trading in a range between €1.1637 – €1.1691. At 15:30 UTC, GBP/EUR trades -0.26% at €1.1649.

The pound is falling lower after retail sales slumped by the most since COVID-19 lockdowns.

Retail sales slumped by 3.2% month on month in December after rising 1.4% in November as shoppers front-loaded their Christmas buying to take advantage of Black Friday and Cyber Monday sales.

The data raises concerns over the outlook for the economy, which could tip into recession as households continue to struggle amid 15-year high interest rates and inflation, which is still twice the Bank of England’s target.

Earlier in the week, data showed that UK inflation rose to 4% annually in December, up from 3.9% in November.

Sticky inflation and weak economic data puts the Bank of England in a difficult spot with regard to its future plans for interest rates. The central bank remains concerned about inflation because it says it’s too early to consider cutting raises.

Looking ahead, there’s no major data to be released on Monday. Next week, UK PMI data will be under the spotlight, particularly given the recent strength in service sector business activities.

The euro is heading higher despite German wholesale inflation falling more than expected in December. PPI figures measure inflation as factory gate level slumped by 1.3% month on month after declining 0.5% in the previous month. Analysts had forecast a fall of 0.5%.

Falling PPI bodes well for continuing easing in CPI data, which could encourage the ECB to cut interest rates sooner rather than later.

However, the ECB has been giving relatively consistent messages that it’s too early to cut interest rates.

ECB president Christine Lagarde had hinted earlier in the week to a possible summer interest rate hike. The December ECB meeting meetings showed no mention of rate cut; however, ECB members were concerned over the outlook for the economy.

Looking ahead to next week, it’s the ECB central Bank rate decision meeting where the central bank is expected to leave interest rates on hold.