EUR/GBP weakens below 0.8750 as UK Retail Sales surpass forecasts

EUR/GBP softens to near 0.8735 in Friday’s early European session.
The UK Retail Sales climbed 1.8% MoM in January, stronger than expected.
ECB’s Lagarde said she intends to complete her term until the end of 2027, dismissing reports of an early resignation.

Lallalit Srijandorn FXStreet

The EUR/GBP cross loses ground to around 0.8735 during the early European session on Friday. The Pound Sterling (GBP) gathers strength against the Euro (EUR) after the stronger-than-expected UK economic data. The attention will shift to the preliminary readings of the Purchasing Managers Index (PMI) from the Eurozone, Germany, and the United Kingdom (UK), which are due later on Friday.

Data released by the Office for National Statistics (ONS) showed on Friday that the UK Retail Sales jumped 1.8% MoM in January, versus a rise of 0.4% prior. This figure came in above the market consensus of an increase of 0.2%. On an annual basis, Retail Sales climbed 4.5% in January compared to a rise of 1.9% prior (revised from 2.5%), better than the estimation of a rise of 2.8%. The GBP attracts some buyers in an immediate reaction to the upbeat UK Retail Sales data.

On the Euro front, the European Central Bank (ECB) President Christine Lagarde said that she expects to serve as ECB president until October 2027, per the Wall Street Journal. Lagarde declined to comment directly on the report of a possible early resignation. However, she stated that the World Economic Forum (WEF) is one of the many options she is considering once she leaves the central bank.

Traders will take more cues from the flash PMI data from the Eurozone and Germany. If the reports show stronger-than-expected outcomes, this could lift the Euro against the Pound Sterling in the near term.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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