- Pound (GBP) is falling for a second straight day
- UK retail sales fell -0.4% MoM in February vs 2% in January
- Euro (EUR) rises but falls versus the USD
- Spanish inflation rises to 3.3% YoY in March up from 2.3% in February
The Pound-Euro (GBP/EUR) exchange rate is falling for a second day. The pair fell 0.02% in the previous session, settling on Thursday at €1.1561. The pair traded between €1.1536 and €1.1581. At 10:30 UTC on Friday, GBP/EUR trades -0.10% at €1.1552. The pair is still set to rise 0.2% across the week, after losses last week.
The pound is under pressure on Friday after UK retail sales declined for the first time since November, as consumers cut back spending even before the Iran conflict clouded the UK economic outlook.
Retail sales fell 0.4% month-on-month in February, reversing January’s strong 2.0% increase. This marked the first monthly decline in three months, although the drop was not as severe as the 0.8% fall economists had expected.
The data suggests households are becoming more cautious and indicates that the UK retail sector entered this period of economic turbulence — driven by the Iran conflict — from an already weak starting point.
Economists have cut UK growth forecasts since the Middle East conflict began, with the Bank of England now expecting rising oil prices to lift UK inflation to around 3.5% later this year.
The OECD has also warned that the UK is particularly vulnerable to an oil and energy shock due to its reliance on imported energy, with some forecasts now pointing to inflation rising towards 4%.
Separately, the GfK consumer confidence survey showed that concerns over rising inflation pushed sentiment to its lowest level in a year.
The euro is rising against the pound but falling further against the US dollar, as investors continue to focus on headlines from the Middle East and still-elevated oil prices.
The eurozone is also highly reliant on imported energy, making higher oil prices particularly negative for the regional economy.
On the data front, preliminary inflation data from Spain showed that CPI accelerated to 3.3% year-on-year in March — the highest level in 14 months and a sharp jump from 2.3% in February — adding to speculation that the ECB may need to consider a rate hike in April.
The ECB left interest rates unchanged at its last meeting but reiterated that it stands ready to act if the data warrants it.
