Pound euro exchange rate soars as ECB pulls the plug on QE but remains dovish on interest rates

Currency markets saw some considerable movement yesterday, with the Pound taking a back seat as markets focused on the Euro in the wake of the ECB’s decision to call time on its bond purchases.

Sterling appears to be pulling back again this morning, with GBP/EUR edging down to €1.1443, GBP/USD tumbling to $1.3213 and GBP/AUD dipping to AU$1.7724. Meanwhile GBP/CAD and GBP/NZD are holding steady at C$1.7373 and NZ$1.9060 respectively.

Looking to today’s session, the US dollar may strengthen should domestic consumer sentiment rise in line with expectations…

What’s been happening?

The pound got off to a solid start on Thursday, with investors welcoming the release of some surprisingly upbeat domestic retail sales figures.

According to data published by the Office for National Statistics (ONS), UK retail sales expanded by 1.3% in May, easily outpacing forecasts of a 0.5% rise, while April’s sales growth was revised up to 1.8%.

However, Sterling fell back by the afternoon as investors took a second look at the report, with analysts suggesting that the robust figures in May are likely to be a temporary blip driven by the good weather and royal wedding.

Meanwhile the GBP/EUR exchange rate soared higher yesterday as markets reacted to the European Central Bank’s (ECB) latest policy meeting.

This saw the euro met by a heavy sell off in the latter half of the session despite the bank announcing its intention to exit its current stimulus programme by the end of 2018.

While this was expected to strengthen the single currency, EUR was undermined by the bank’s accompanying statement which indicated interest rates would remain on hold until late 2019.

Finally the GBP/USD exchange rate slumped on Thursday as the US published its own retail sales figures.
The US Commerce Department reported domestic retail activity expanded faster-than-expected last month, with sales jumping 0.8% against the 0.4% growth forecast, and adding further evidence that the US economy is growing at a healthy clip in the second quarter.

What’s coming up?

Looking ahead, with the UK having exhausted its economic data, there may bit little to drive momentum in the Pound on Friday, leaving it vulnerable to fluctuations in the currency markets or the potential for fresh Brexit uncertainty.

The euro also faces a relatively quiet end to the week as well, with markets likely to remain focused on the ECB’s latest policy outlook, providing today’s Eurozone inflation reading offers little in the way of surprises.

Meanwhile the US may look to close this week on a high note with the publication of the latest US consumer confidence figures, with forecasts that household sentiment will have ticked higher again in June.