EUR/GBP holds losses near 0.8650 as BRC Like-For-Like Retail Sales accelerate in August

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EUR/GBP edges lower after two days of gains, trading around 0.8670 during the Asian hours on Tuesday. The currency cross depreciates as the Pound sterling (GBP) receives support after the release of British Retail Consortium (BRC) Like-For-Like Retail Sales, which rose 2.9% year-on-year in August.

EUR/GBP depreciates as BRC Like-For-Like Retail Sales climbed 2.9% YoY in August, beating the expected 2% growth.
The BRC said August’s consumer spending was encouraging but stressed that retailers remain cautious.
The Euro receives support as the ECB is widely expected to keep rates unchanged in September.

The BRC said in its statement that August’s figures were encouraging but highlighted that retailers remain cautious amid weak consumer confidence ahead of the Christmas trading season. The sector continues to grapple with high borrowing costs, elevated energy bills, and uncertainty surrounding the government’s November budget.

The EUR/GBP cross may regain its ground as the Euro (EUR) continues to draw support against its peers ahead of the European Central Bank (ECB) interest rate decision due on Thursday. Traders expect the ECB to keep rates unchanged for the second consecutive meeting in September, supported by steady growth and inflation hovering near the target. Market participants will scrutinize the meeting for any guidance on the bank’s outlook for the rest of the year.

France, the third-largest economy in Europe, is struggling with a fresh political crisis after Prime Minister François Bayrou lost a confidence vote in the National Assembly. Bayrou had unexpectedly called the vote amid strong opposition to his budget plans. President Emmanuel Macron is expected to appoint a new prime minister within days, per the BBC.

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What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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