The euro declined against the British pound on Friday despite the release of slightly better-than-expected German PPI and Eurozone consumer confidence data. Notably, the UK’s retail sales unexpectedly surged in April. This enabled the pound to gain ground against the euro. Overall, the EUR/GBP declined from a high of 0.8490 to a low of 0.8450.
According to the GfK institute, the UK’s consumer confidence index, which reflects the manner in which people look at their finances and overall economic scenario, fell by 2 points to a new historical low of -40 in May, from -38 in April and worse than the reading of -39 anticipated by economists. Notably, the prior historic low reading of -39 was recorded in July 2008 as an outcome of the worldwide financial crisis.
Nearly all gauges of confidence monitored by the GfK institute declined in May, reflecting an ongoing decline from April, when household spending was negatively impacted by a surge in energy bills.
Also, the UK inflation jumped to 9% in April, mirroring a record high level since the beginning of the 1980s. Notably, the Bank of England had cautioned earlier in May that the UK’s economy is on the verge of entering a recession if inflation crosses 10%.
According to the UK Office for National Statistics, the country’s retail sales volumes grew by 1.40% m-o-m in April, following a 1.20% decline in the previous month and delighting economists who were anticipating a 0.30% drop for the reported period.
At the end of April, retail sales volumes stood 4.10% higher than pre-pandemic February 2020 levels. On a broader basis, in the three months to April 2022, sales volumes dropped by 0.30% when compared with the earlier three months. This is a continuation of the decline that began in the summer of 2021. Food store sales volumes increased 2.80% in April, primarily because of an increase in spending on alcohol and tobacco in supermarkets.
Non-store retail sales volumes, which are basically sales from purely online retailers, increased 3.70% in April, aided by robust sales of clothing. Automotive fuel sales volumes increased 1.40% in April, following a decline of 4.20% in March.
Non-food store sales volumes decreased 0.60% in April. The percentage of retail sales online increased to 27% in April, from 25.90% in March, and continues to stay considerably higher than the pre-pandemic February 2020 level of 19.90%.
According to German statistical agency Destatis, the country’s PPI (producer price index), reflecting the change in producer prices of industrial products, increased 2.80% m-o-m in April, following a rise of 4.90% in the previous month and more than double the 1.20% growth anticipated by economists.
On a y-o-y basis, the German PPI surged 33.50% in April 2022, reflecting the steepest surge on a yearly basis. Energy prices surged by 87.30% y-o-y in April 2022. On an m-o-m basis, energy prices grew by 2.50% in April.
Prices of intermediate goods rose by 4.10% m-o-m in April. On a y-o-y basis, these prices surged 26%. Prices of non-durable consumer goods increased 3.90% m-o-m in April, and 13.2% on a y-o-y basis. Prices of durable consumer goods grew by 8.30% y-o-y in April 2022. Capital goods prices increased 6.70%.
Data published by Eurostat revealed the Eurozone consumer confidence index improved to -21.10 in May, from 22 in the prior month. Economists did not anticipate any change in the Eurozone consumer confidence index. Notably, the index reading remains far below the long-term average of -10.
The unexpected increase in the UK’s retail sales is expected to keep the EUR/GBP currency pair slightly bearish in the short term.
The historical price chart shows that the EUR/GBP pair is declining after facing resistance at 0.8490. The next support is anticipated only near 0.8390. Additionally, the currency pair is trading below its 50-day moving average, while the stochastics indicator is in the bearish zone. We are expecting the EUR/GBP pair to stay in a downtrend in the short term.
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