Pound Sterling Euro (GBP/EUR) Exchange Rate Muted After Solid Eurozone PMIs
The Pound Sterling to Euro (GBP/EUR) exchange rate lost further ground in the wake of the latest Eurozone manufacturing and services PMIs.
As both sectors remained in a solid state of expansion this offered support to the Euro (EUR), even though the manufacturing PMI still fell short of forecast.
Investors were encouraged by the fact that the currency union picked up further momentum in August, although the impact on EUR exchange rates was limited ahead of the release of the European Central Bank’s (ECB) July meeting minutes.
Chris Williamson, Chief Business Economist at IHS Markit, commented:
‘The survey data indicate that the Eurozone economy looks to have continued to grow at a steady rate in August, raising hopes that the third quarter could see GDP growth match the 0.4% expansion seen in the second quarter. In fact, the survey evidence suggests that the official data so far this year could yet be revised slightly higher.
‘Jobs growth also remains encouragingly robust, which should help further stimulate consumer spending and help offset signs of continuing weakness in exports.
‘With the indicators of current activity, employment and price gauges remaining elevated, the August survey sends a hawkish signal to policymakers.’
GBP/EUR Exchange Rate Vulnerable to Weaker UK Sales Survey
Brexit-based jitters continued to drag on the Pound Sterling to Euro (GBP/EUR) exchange rate over the course of the week, with markets still fearful of the prospect of a no deal exit.
As forecasts point towards a softening in the CBI reported retail sales survey for August this could put further downside pressure on Pound Sterling (GBP).
Evidence that the UK economy is struggling to strengthen in the third quarter may weigh heavily on GBP exchange rates, giving the Bank of England (BoE) greater cause for caution.
If sales show signs of picking up on the month, however, this is likely to offer the GBP/EUR exchange rate a rallying point in the short term.
As long as a significant degree of uncertainty continues to surround the matter of Brexit, though, the potential for Pound gains remains limited.
Hawkish ECB Minutes May Dent Pound Sterling Euro (GBP/EUR) Exchange Rate Further
July’s ECB meeting minutes are likely to provoke some significant volatility for the Pound Sterling to Euro (GBP/EUR) exchange rate, meanwhile.
Any signs of greater hawkishness among policymakers may give the Euro a strong boost against its rivals, bolstering hopes that the central bank will tighten monetary policy sooner rather than later.
While markets do not expect the ECB to raise interest rates until well into 2019 any indication that the governing council is taking a more hawkish outlook would still improve the appeal of the single currency.
After Eurozone inflation pushed above the ECB’s 2% target in July there is less of an excuse for the central bank to leave monetary policy on hold.
As a result, a dovish set of minutes would weigh heavily on the single currency, giving the Pound Sterling to Euro (GBP/EUR) exchange rate a leg up ahead of the weekend.