Pound Euro (GBP/EUR) Exchange Rate Slides as BoE Maintains Cautious Economic Outlook

Lack of Bank of England Action Fuels Renewed Pound Euro (GBP/EUR) Exchange Rate Losses

As the Bank of England (BoE) opted not to act at its September policy meeting the Pound Sterling to Euro (GBP/EUR) exchange rate came under renewed pressure.

Policymakers failed to encourage demand for Pound Sterling (GBP), in spite of noting that some recent data has proved stronger than forecast.

While this suggests that the UK economy may have recovered some of its lost strength in the last month or so the BoE still maintained a cautious outlook on the future.

As policymakers flagged up rising unemployment as a key risk to the economy this prompted investors to pile out of the Pound.

The BoE also acknowledged the presence of Brexit-based risks to the outlook, stoking fresh bets on the possibility of a no-deal scenario and putting weight on the GBP/EUR exchange rate.

Plunge in Eurozone Car Registrations Weighs on Euro Appeal

A deeper-than-expected monthly decline in Eurozone new car registrations cast fresh doubt over the currency union’s recovery from the Covid-19 pandemic, meanwhile.

As registrations plunged -18.9% on the month in August this raised fears that the initial bounce back in demand was only temporary, pointing towards a fresh loss of momentum within the economy.

This limited the relative strength of the Euro (EUR) as investors remain wary of the potential for the Eurozone economy to experience another slowdown before the end of the year.

With forecasts pointing towards a contraction in August’s monthly German producer price index the mood towards the single currency could sour further.

Fresh evidence of weakening inflationary pressure within the Eurozone’s powerhouse economy would give the European Central Bank (ECB) greater cause for caution, reducing the appeal of the Euro.

Unless inflationary pressure shows signs of picking back up this could help to put a floor under the GBP/EUR exchange rate in the near term.

Signs of Slowing UK Retail Sales Growth Forecast to Dent Pound Sterling

The Pound could face further selling pressure ahead of the weekend if August’s UK retail sales figures fail to impress.

After a strong month of 3.1% sales growth in July forecasts point towards a more modest uptick of 0.7%, demonstrating a slowdown in consumer spending.

Signs that the recent resurgence in Covid-19 anxiety and the easing of government support measures have dented retail sales could drag the GBP/EUR exchange rate lower on Friday.

Without the UK economy demonstrating signs of sustained resilience in the third quarter confidence in the outlook may deteriorate further.

Focus on the controversial Internal Market bill could also put a dampener on Pound Sterling in the days ahead as the issue of Brexit continues to hang over GBP exchange rates.

As long as the odds of a potential no-deal scenario remain heightened the GBP/EUR exchange rate may struggle to significantly recover from its recent six-month low.