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Pound Euro (GBP/EUR) Exchange Rate Forecast: Is the UK on Track to Stagnate in the Second Quarter?

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GBP/EUR Exchange Rate Steady as UK Service Sector Avoids Contraction

The Pound Euro (GBP/EUR) exchange rate is holding steady this morning after the UK’s service sector showed modest growth in May.

At the time of writing the GBP/EUR exchange rate is virtually unchanged this morning, with the pairing holding at €1.1270.

Pound (GBP) Flat, Modest PMIs Point to Stagnation in GDP.

The Pound (GBP) is consolidating against the Euro (EUR) and most of its other peers this morning as GBP investors were relieved to hear that the UK’s service sector managed to avoid contracting in May.

According to data published by IHS Markit, the UK’s services PMI crept up from 50.4 to 51.0 last month, dispelling concerns of a broad slump across the UK economy after both manufacturing and construction contracted in May.

However ultimately the modest pace of expansion in the service sector will not be enough to offset the slowdown in other parts of the economy, with recent data indicating that the UK economy is on course to stagnate in the second quarter.

Chris Williamson, Chief Business Economist at IHS Markit, said:

‘The PMI surveys collectively indicated that the UK economy remained close to stagnation midway through the second quarter as a result, registering one of the weakest performances since 2012.’

GBP/EUR Exchange Rate Forecast: What Does a Reshuffle at the ECB Mean For Monetary Policy?

Looking ahead, the main catalyst for movement in the Pound Euro (GBP/EUR) exchange rate through the second half of the week is likely to be the European Central Bank’s June Policy Meeting.

While no policy changes are expected from the bank following the conclusion of its meeting on Thursday, we could still see some movement in the Euro as EUR investors instead focus on the fresh faces making an appearance at the meeting in Vilnius.

This year will see the departure of at least 10 of the 25 members of the ECB’s Governing Council, the most notable of course being President Mario Draghi.

The departure of the team who spearheaded the ECB’s ultra-loose monetary policy could mark a major shake-up of the culture at the bank, and EUR investors will be on the lookout for any signs whether future members of the governing council will seek to continue Draghi’s legacy or adopt a more hawkish policy approach.