Pound to Euro Rate Fails to Crack 1.17, GBP Seeks a Breakout

March 6, 2024 - Written by John Cameron

STORY LINK Pound to Euro Rate Fails to Crack 1.17, GBP Seeks a Breakout

The Pound to Euro exchange rate has held steady, but unable to break above the 1.1700 level.

Traders will be looking at Wednesday’s UK budget and Thursday’s ECB policy decision to attempt a range break.

UK data releases have not provided further currency support and domestic equity markets have also moved lower, limiting Pound support.

The British Retail Consortium (BRC) reported that UK like-for-like sales increased 1.0% in the year to February from 1.4% previously and below consensus forecasts of 1.6%.

Food sales increased 6.0% on the year while non-food sales declined 2.5%.

Linda Ellett, UK Head of Consumer Markets, Leisure & Retail, KPMG, commented; “Cuts in national insurance rates designed to put more money in people’s pockets have so far failed to translate to a boost to consumer spend on the high street, with retail sales growth in February recording a limp 1.1%.”

She added; “As many households continue to adapt budgets to meet higher essential costs, including higher mortgage rates, consumer reluctance to get out there and start spending is likely to remain in the short term.”

Ellett did express some hope; “As inflation continues to slow over the coming months and household finances are expected to improve, there is some light at the end of the tunnel for weary households.”

She also pointed to hopes that the budget will help stimulate increased demand and markets overall will also be monitoring budget developments closely.

The final services-sector PMI index for February was revised down to 53.8 from the flash reading of 54.3.

Business confidence increased to the strongest level since February 2022. Survey respondents noted a turnaround in business conditions so far this year, as well as hopes of interest rate cuts and the positive impact of planned investment spending.

There was further upward pressure on costs with services-sector prices increasing at the second-fastest rate since July 2023.

According to Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the survey; "Another solid expansion of business activity across the service sector in February adds to signs that the UK economy has turned a corner after entering a technical recession during the second half of 2023.”

He added; “Adding to signs of robust domestic inflationary pressures, prices charged by service providers increased at one of the fastest rates since last summer as many firms commented on the need to pass on higher staff costs."

Barclays notes that the Pound has been resilient in the face of disappointing data. It added; “Accordingly, we maintain a constructive view of the pound (particularly vs EUR and CHF), which benefits further from the gradual erosion of the Brexit premium ahead of the general election (likely in H2).”

Barclays also commented; “Additional fiscal stimulus from the latter may add to the inflationary risks and marginally support the pound.”

The ECB will issue its policy decision on Thursday with no change in interest rates likely.

The main focus will be on any comments and hints surrounding a first rate cut.

According to ING; “The governing council also seems to coalesce around June as the date for a first cut, and if the ECB does indeed start to prepare the ground for such an outcome, that could be seen as mildly dovish against the backdrop of more cautious market pricing.”

ING added; “The possibility that the ECB discusses the conditions for starting to ease policy implies that the balance of risks is slightly titled to the downside for the euro this week.”

Rabobank expects central bank caution; “The ECB will probably flag further progress towards the inflation aim, supported by the latest data and a fresh set of forecasts. Still, it is too early for them to express confidence. In our view, June is the first ‘live’ policy meeting. That said, we still see September as the more likely timing for a first cut.”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts