– Written by
Frank Davies
STORY LINK British Pound to Euro Forecast: GBP Supported as UK Retail Sales Surge
The Pound to Euro exchange rate (GBP/EUR) attempted to stabilise after plunging to eight-week lows near 1.1425, as a much stronger-than-expected 1.8% surge in UK retail sales (vs 0.2% forecast) helped cushion Sterling’s slide.
The upside consumer surprise suggests underlying demand remains resilient despite soft labour market data and cooling inflation, complicating expectations of aggressive Bank of England easing. While markets still anticipate a March rate cut, the retail rebound reduces the urgency for deeper policy loosening and has helped GBP/EUR recover modestly from its worst levels.
GBP/EUR Forecasts: Retail Resilience Offsets Broader Sterling Pressures
The Pound to Euro (GBP/EUR) exchange rate was subjected to renewed selling on Thursday with fresh 8-week lows near 1.1425 before staging a modest rebound following the retail sales data. Immediate support remains in the 1.1360–1.1380 band.
The overall performance had been notably disappointing given that the Euro was under pressure against the dollar, but the upside retail surprise offered some short-term relief for Sterling.
Danske Bank pointed to ongoing fundamental pressures on the currency; “While core measures were above the BoE’s expectations from the February MPR the drop in inflation today likely marks the start for annual rates to move lower over the coming months given base effects dropping out of the measure.
It added; “Combined with more pronounced labour market weakness, we still believe the scope for further BoE rate cuts is intact. We remain bearish on GBP FX.”
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The bank expects GBP/EUR losses to 1.1240 on a 12-month view.
Bank of America commented; “Our economists turned more confident in their base case of a 25 basis points cut in March followed by one additional cut in June, as the previously highlighted upside risks appear to have diminished.”
Scotiabank added; “Fundamental support has been eroded on the back of weaker jobs data, narrowing yield spreads as markets have repriced easing from the BoE.”
Elsewhere, the CBI industrial trends index edged higher to -28 for February from -30, although output continued to decline.
Cameron Martin, CBI Senior Economist, commented:
“The downturn in manufacturing output eased in February, after a downbeat period around the turn of the year. However, many firms continue to report customers holding back amid low confidence and elevated cost pressures.”
Attention now turns to PMI business confidence data for the UK and Euro-Zone. Consensus forecasts are for a slight retreat in UK manufacturing and services to 51.5 and 53.5 respectively, while Euro-area data is expected to show further modest improvement.
The balance between resilient consumer demand and weaker labour market dynamics will be crucial for Sterling’s near-term direction.
Nomura also highlighted political risks for the Pound; “the Gorton and Denton by-election on 26 February poses significant risks for Starmer to stay as Prime Minister.
With Manchester Mayor Andy Burnham blocked from standing by Labour’s National Executive Committee, a potential Labour loss in this traditional stronghold could trigger accusations that Starmer prioritizes personal survival over party interests.”
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TAGS: Pound Euro Forecasts
