The euro remained range-bound against the pound yesterday following the release of weak economic data from both Germany and the UK. While Germany’s consumer climate index forecast for September missed estimates, the Confederation of British Industry’s retail sales volume data for August failed to meet expectations. Overall, the EUR/GBP pair fell from a high of 0.8470 to a low of 0.8435 in the past 24 hours.
The German GfK consumer climate index worsened to -22 in the forecast for September from -18.60 in the previous month. The reported reading was worse than the forecast of -18.30.
The decline was mainly led by a drop in income expectations. The slight rise of 2.70 points in the willingness to save also poured water over the consumer sentiment.
German private households are becoming less optimistic about their financial scenario in the upcoming 12 months, with the income forecast indicator dropping by 16.2 points to 3.5 points, marking the sharpest decline since September 2022.
The downturn in income expectations has also negatively influenced consumers’ inclination to make purchases, though the decline here is more moderate at 2.5 points, leaving the indicator at -10.9 points in August. Despite this decrease, there is still a 6-point improvement compared to the similar period of 2023.
Economic outlook continues to fluctuate, with the indicator falling by 7.8 points in August, following a notable rise of 7.3 points in July, bringing it down to 2.0 points.
According to the final data published by Destatis, Germany’s economy contracted 0.10% q-o-q in the June 2024 quarter, following 0.20% GDP growth in the March 2024 quarter. The preliminary estimates had pegged Germany’s economic contraction at 0.10%. Economists did not anticipate any change in the preliminary estimates.
On a y-o-y basis, the German economy did not undergo any change in the second quarter.
Private consumption inched down 0.20% in the June 2024 quarter after a 0.30% increase in the March 2024 quarter.
Gross fixed capital formation fell by 2.20% m-o-m in 2Q 2024 after an increase of 0.10% in 1Q 2024. Construction investment decreased by 2% in the June 2024 quarter following a 0.80% increase in the previous quarter. Likewise, equipment investment fell by 4.10% after a decrease of 1.60%.
Exports shrank 0.20% in the June 2024 quarter following a 1.30% increase in the previous quarter. Imports remained flat after a 0.80% increase. Government spending increased by 1% in the June 2024 quarter after a 0.10% decline in the previous quarter.
According to the data published by the Confederation of British Industry, the UK’s retail sales volumes fell -27% in the year to August from -43% in July but missed forecasts of -11. Retailers anticipate the sales to decline by -17% in September.
Retail sales in the UK for August were characterized as “poor” for the time of year, though the decline was less severe than in the previous month, with a drop of 21% compared to July’s 36% decrease. Expectations for next month indicate a continued underperformance in sales volumes with an anticipated reduction of 18%.
Also, retailers expect a slight decline of about -13% in their business scenario over the next three months after rising by 2% in May. Retailers anticipate a more significant reduction in investment over the next 12 months compared to the previous year, with expectations showing a decline of 35%, a steeper drop than the 25% decrease projected in May.
The total distribution sector, encompassing retail, wholesale, and motor trades, experienced a moderate contraction in the year to August, with a decline of 20%, an improvement from July’s 30% decrease. Looking ahead, sales are expected to decline at a much slower rate in September, with a projected reduction of 6%.
Internet sales volumes declined at a slower rate in the year to August, declining by 15%, compared to a 7% drop in July. Looking forward, the decline is expected to accelerate next month, with a projected decrease of 30%.
Motor trades sales volumes dipped at the quickest rate since October 2022, falling by 57%, compared with a decline of 29% in July. In September, motor trade sales volumes are anticipated to decrease by 25%.
The weak economic data from both countries is expected to keep the EUR/GBP pair range-bound in the short term.
The historical price chart indicates that the EUR/GBP pair is descending after facing resistance at 0.8470. The next major support is anticipated to be only near 0.8405. Additionally, the currency pair is trading below its 50-day moving average, while the stochastic indicator is in the bearish zone. Therefore, we anticipate the EUR/GBP pair to remain in a downtrend for the next few trading sessions.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
