GBP/EUR Exchange Rate Wavers as PMI Data Prints Mixed Messages
The Pound (GBP) is trading very slightly down against the Euro (EUR) this afternoon as traders take into account poor UK PMI data. Eurozone PMIs printed above expectations: but gains are capped by a dovish European Central Bank (ECB).
At the time of writing, GBP is trading at €1.1690, virtually unchanged from this morning’s opening levels.
Euro (EUR) Gains Capped by ECB’s Dovish Stance
The Euro has ticked up slightly today as the market celebrates largely positive figures from the combined Euro Area. PMI flash data exceeded forecasts across both sectors.
The news wasn’t as encouraging as it could have been: despite reaching forecasts, the Euro Area Manufacturing PMI did fall from June’s record high of 63.4. Slower growth was linked in many cases to worsening supply lines and shortages of inputs.
Services, however, pointed to the steepest pace of expansion in the service sector in 15 years, due to the easing of COVID-19 restrictions. New order growth accelerated to the strongest level since July 2007 and employment continued to rise significantly.
In the face of the Eurozone’s gains, dovish forward guidance from the European Central Bank (ECB) exerted pressure on the single currency, as the central bank broadcasted its decision yesterday to leave interest rates unchanged ‘until it sees inflation reaching two percent well ahead of the end of its projection horizon and durably for the rest of the projection horizon.’
Policymakers confirmed that discussion on the Pandemic Emergency Purchase Programme (PEPP) would take place after the summer: although Reuters reported on Friday that policymakers do not expect to make a decision on PEPP changes at September’s meeting.
With Euro’s outlook looking fairly bleak, investors hope that Monday’s German Ifo Business Climate data may elevate the EUR/GBP exchange rate, as the consensus prediction sits above last month’s figure at 102.1. Thursday’s consumer confidence and economic sentiment readings may also help to bolster Euro sentiment.
Pound (GBP) Gains Stifled by Downbeat Data, Could Dip Lower?
This morning’s retail sales report showed a small recovery of 0.5%, which looked to lend support to the Pound: until PMI reports were published, short of forecasts in both the manufacturing and services sectors.
The manufacturing PMI pointed to the softest pace of expansion in the sector since March, reflecting weaker rates of output and new order growth. Manufacturers reported strong demand from both domestic and export clients, with shortages of materials and other critical components the main factor holding back production volumes.
Services, meanwhile, suffered as a result of Covid isolation rules and pandemic-related restrictions. New business volumes increased at the slowest rate for five months, despite a rise in export sales for the first time since April, while the rate of job creation eased from June’s recent peak, largely due to difficulties filling vacancies.
Looking forward, Monday’s Bank of England (BoE) speech may bring some support to the Pound if a hawkish tone is struck; otherwise, investors will likely look to coronavirus developments for trading direction. Progress regarding the Northern Ireland Protocol in discussions between the UK and the EU could also boost GBP.