- Pound (GBP) is falling for a fifth straight day
- UK retail sales drop -1.6%
- Euro (EUR) rises despite falling German PPI
- ECB left rates unchanged
The Pound Euro (GBP/EUR) exchange rate is falling for a fifth straight day. The pair fell 0.08% in the previous session, settling on Thursday at €1.1879 and trading in a range between €1.1870 and €1.1902. At 20:00 UTC, GBP/EUR trades -0.12% at €1.1865.
The pound is cooling for a fifth straight day after UK retail sales data raised concerns about the health of the UK consumer.
Retail sales slumped by 1.2% month on month in June, significantly worse than the 0.4% decline that economists had forecasted and down substantially from the 2.9% increase in May.
While retail sales are renowned for being volatile data, sales have been slowing broadly speaking. Households are squeezed as interest rates remain at 16-year highs and as the Bank of England asses when to start cutting interest rates.
Data this week showed that service sector inflation remains sticky at 5.7%; however, wage growth decreased to its lowest level in two years, which could point to cooling service sector inflation in the coming months.
The market is currently pricing in around a 40% probability that the Bank of England will cut interest rates in August.
Meanwhile, the euro is rising higher despite German wholesale inflation cooling further in June. Wholesale inflation, measured by the producer price index, fell 1.6% year on year in June after falling 2.2% in May. Cooling PPI points to continuing cooling in consumer price inflation.
Yesterday, the ECB left interest rates on hold at 3.75% after reducing them by 0.25% in June. ECB president Christine Lagarde said the September meeting remained wide open. However, she also sought to calm concerns over sicky service sector inflation, which the market interpreted as a signal towards a rate cut in September. The market is pricing in a 65% probability that the ECB will cut at the end of the summer.
