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The common currency jumps versus sterling! The euro to pound interbank exchange rate has hit 0.8934 today, its highest in 8 months, or since November 28th last year.
The euro has lift-off versus the pound, because UK retail sales unexpectedly fell by -0.5% in June, said the Office for National Statistics (ONS), below forecasts for a +0.4% rise.
In particular, UK retail sales dropped last month, as "consumers stayed away from stores and instead enjoyed the World Cup and the heatwave," said the ONS, thus hurting sterling.
This has weakened the pound, first because retail sales are one of the motors of the UK economy. Hence, when retail sales fall, UK GDP may grow more slowly.
This has also dragged down sterling, because falling retail sales cut the odds that the Bank of England will lift UK interest rates, by +0.25% to 0.75%, as hoped for next month.
"That was a terrible set of retail sales figures which will do nothing to persuade the Bank of England to hike in August", says Markets.com's Neil Wilson, thereby weighing on the pound!
Sterling Slides, as UK Inflation Stays Steady
What's more, the euro to pound interbank exchange rate has also reached this 8-month high, because the UK's inflation unexpectedly stayed steady in June, said the ONS this week.
Sterling has lost out, because UK inflation remained at 2.4% last month, according to the ONS on Wednesday, the same as in May, and below financial market forecasts for a rise to 2.6%.
To be specific, UK price pressures remained the same in June, as lower prices for food, drink and computer games compensated for higher energy prices, thus weighing on the pound.
This has dragged down sterling, because June's UK inflation figures suggest that the UK remains too wobbly at the knees to generate consistently higher price pressures.
This has also hurt the pound, because when UK inflation stands still, the Bank of England is less likely to lift UK interest rates in August, by +0.25% up to 0.75%!
As a result, the common currency has hit this 8-month high versus sterling, and could rocket higher in coming weeks!
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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email firstname.lastname@example.org.