The GBPEUR exchange rate rallied 0.69% on Thursday to cap a strong two-day rebound in the pound sterling. The European Central Bank implied that rates will remain low for a long time, while stimulus will also be applied for an extended period.
The GBP to EUR now trades above the 1.1700 level once more and this is proving to be a stubborn level for bulls and bears.
UK retail sales ahead today
Today sees the release of the latest UK retail sales for June with the market expecting a 9.6% improvement. Last month’s figure was a strong 24.6% rebound as the economy was let loose from the recent lockdown shackles.
The GfK Consumer Confidence Index rose in two of its measures, with past economic situation and major purchases increasing, while past personal finances and future economic situation both decreased.
Joe Staton, client strategy director GfK, said: “Consumer confidence edged ahead of its March 2020 pre-lockdown headline score by two points to -7 in July and has held firm or improved for six months in a row. Personal finance expectations for the next year remain strong and there’s a dramatic jump this month in our major purchase sub-measure with shoppers agreeing that now is the ‘right time to buy’. The healthy seven-point rise aligns with strong retail growth figures that reflect the gradual unlocking of the UK high street and release of pent-up demand as Brits hit shops, restaurants and venues.”
“However, threats from increasing consumer price inflation, Covid variants and rising infection figures, the looming end of furlough and the Job Retention Scheme, could put the brakes on this rebound. Consumers are aware of these pressures judging from the latest fall – from -2 to -5 – in how they view the general economy in the year ahead. What happens across the remaining summer months will frame consumer confidence for the rest of 2021 and beyond.”
European Central Bank tweaks inflation, stimulus length
The European Central Bank tweaked its policy message on Thursday after changing its inflation target. The key takeaway for analysts was that interest rates are going to remain low for a long time.
The ECB h completed a strategic review earlier in the month and moved to a 2% inflation target in place of its previous goal of keeping inflation near, but just below 2%.
In its Thursday statement, the Governing Council said it wouldn’t be increasing interest rates, including its key rate, which currently stands at -0.5%. The bank said it wants to see inflation near its 2% target and added, this “may also imply a transitory period in which inflation is moderately above target.”
Goldman Sachs Asset Management said: “We expect the ECB to maintain its status quo of ‘status low’ for the foreseeable future, with rate hikes unlikely to be on the policy agenda until the second half of this decade at the earliest”.
The GBP versus the EUR rate will now hinge on the same 1.17 level that has constrained the pound sterling over the last month. The yearly highs stand at 1.18 in the rate.