Euro edges lower against British Pound as Germany’s Retail Sales fall more than expected in July
- EUR/GBP softens to around 0.8570 in Tuesday’s early European session.
- Germany’s Retail Sales fell by 3.4% MoM in July, weaker than expected.
- BoE’s Bailey saw 'subdued' second-round inflation effects for now.
The EUR/GBP cross loses traction to near 0.8570 during the early European trading hours on Tuesday. The Euro (EUR) edges slightly lower following German Retail Sales data. Traders brace for the preliminary reading of the Eurozone August Harmonized Index of Consumer Prices (HICP), which will be published later on Tuesday.
Data released by Destatis on Tuesday showed that German Retail Sales, a key measure of consumer spending, fell by 3.4% MoM in July, compared to 0% in June (revised from -1.1%). This figure came in weaker than the market expectations of a 0.4% rise. On an annualized basis, Retail Sales dropped 2.5% in July, versus a 0.2% decline prior.
The European Central Bank (ECB) policymakers have lifted borrowing costs once and are set to hike again at the upcoming policy meeting on September 10. Traders are betting on monetary policy being tightened further still next year.
On the UK’s front, Bank of England (BoE) Governor Andrew Bailey played down the inflation threat, saying that the UK is not yet experiencing significant second-round inflation effects.
“We’re seeing quite subdued second-round effects; I think we’ve seen a softening labor market for some time now,” said Bailey. “I’ve taken the view that I think we can watch this situation for the moment,” he added.
Markets are fully pricing in a quarter-point increase this year and another by the spring, according to Bloomberg.
Uk fiscal discipline faces rising security and defense demands
BNY’s Geoff Yu highlights that the new Labour administration’s commitment to fiscal discipline is complicated by evolving security needs. He argues that “the broader policy challenge is balancing tighter fiscal constraints with growing defense and resilience demands, as the U.K. responds to higher security risks, hybrid threats and pressure to increase military preparedness without undermining confidence in the public finances.” This tension between budgetary restraint and heightened defense requirements is becoming a key consideration for investors in UK assets and the Pound.
Technical Analysis: EUR/GBP retains a bearish vibe under the 100-day SMA
In the daily chart, EUR/GBP maintains a mildly bearish, capped tone as it holds beneath the 20-day Bollinger simple moving average and the 100-day moving average. The cross is hovering closer to the mid-band than the lower band, while the Relative Strength Index (14) around 53 suggests neutral-to-slightly positive momentum that has yet to overcome the overhead moving-average structure.
On the topside, initial resistance emerges at the 20-day Bollinger middle band at 0.8560, ahead of the upper Bollinger band near 0.8585 and the more significant 100-day moving average at 0.8605. On the downside, the next notable support is aligned with the 20-day Bollinger lower band around 0.8535, where buyers could attempt to slow any extension of the recent pullback.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro 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 then its currency will gain in value 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.
