The Euro to Pound Sterling (EUR/GBP) exchange rate strengthened to its best level in a month on Tuesday following the release of stronger than forecast PMI data from the Eurozone and as inflation in the UK was shown to have fallen to zero in February. Against the US Dollar the Euro advanced to a 3-week high.
The Euro to Pound Sterling (EUR/GBP) exchange rate climbed to a session high of 0.7362
Further signs that the Eurozone economy is making a recovery bolstered the Euro against the majority of its most traded peers. Data out of Germany, the 19-member currency bloc’s largest economy showed that the nation’s economy is gaining strength.
According to Markit its Composite PMI which measures activity in both the service and manufacturing sectors, jumped to an eight month high of 55.3. The figure was better than economist forecasts. Separately, service sector activity increased to a six-month high and manufacturing improved to an eight-month high.
Another report released by Markit also showed that activity across the Eurozone increased at its fastest pace in four years as the European Central Bank’s €1.1 trillion quantitative easing programme made its presence felt.
The Eurozone flash composite PMI rose more-than-expected to 54.1 in March from 53.3 in February. The index rose for the fourth consecutive month to reach the highest since May 2011. The reading stayed above the forecast of 53.6. At 53.3, the average PMI reading for the first quarter was the highest since the second quarter of last year. The services PMI came in at 54.3 in March, a 46-month high. Economists had forecast the index to rise to 53.9 from 53.7 in February.
The Pound Sterling weakened as UK inflation fell to its lowest level on record in February as food prices tumbled by 3.4% and motor fuels fell by a massive 16.6%. The drop to 0% means that inflation is now at its lowest level since 1988 when the first Consumer Price Index (CPI) was created. Economists had been forecasting for a figure of 0.1%. With inflation falling more than expected, the Pound came under heavy pressure, as it is now more likely that the Bank of England (BoE) will choose to push back an interest rate rise.
‘Despite inflation dropping to zero, it is unlikely we will see falling prices for a prolonged period, particularly as the pressure from lower oil prices fades. With the Monetary Policy Committee still alert to the risk of very low inflation becoming entrenched, a rise in interest rates anytime soon seems off the cards,’ said Rain Newton-Smith, director of economics at CBI.
The Euro to US Dollar (EUR/USD) Exchange Rate climbed to a session high of 1.1001
The Euro also advanced against the weakened US Dollar. Increasing doubts that the US Federal Reserve will begin to hike interest rates this year has seen the ‘Greenback’ fall against the majority of its most traded peers.
Sentiment towards the currency remains vulnerable as the Fed downgraded its forecasts for economic growth and inflation. The Euro is forecast to make more gains later in the session as US inflation is likely to have weakened again in February.
