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Will GBP/EUR Firm amid Improved UK Business Confidence?

Pound Coin on Euro Banknote GBP/EUR

Pound Euro (GBP/EUR) Exchange Rate Firms despite Downbeat Private Sector Indexes

The Pound Euro (GBP/EUR) exchange rate is firming this morning, following the release of downbeat PMIs in both the UK and Eurozone.

At the time of writing, GBP/EUR is trading at around €1.1577, an increase of around 0.2% from the morning’s opening rates.

Will Upbeat CBI Indexes Buoy GBP?

During today’s trade, the Pound (GBP) could struggle for clear support on the back of downbeat private sector indexes. While GBP is currently up against the Euro (EUR), Sterling is falling against most other peers.

Both services and manufacturing indexes printed below forecast, and slowed from previous readings, indicating that the UK economy is continuing to struggle. While there are now diminished expectations on bumper rate hikes from the Bank of England (BoE), recession anxieties remain present.

Tomorrow, the Confederation of British Industry (CBI) are scheduled to release July’s industrial trends orders index, alongside a business optimism index for Q3.

While industrial trends are expected to tick upward, the data is forecast to remain in negative territory, which could dent Sterling. However, business confidence is forecast to show a firm improvement for Q3, rising to 5 from -2.

If this prints accurately, Sterling could see a recovery during Tuesday’s session. However, due to recent paring back BoE rate hike bets, the gains may be limited.

Will Downbeat Economic Data Dampen EUR?

Similarly to the Pound, over the rest of today’s session, the Euro could continue to struggle for support, on the back of the morning’s dismal PMI readings.

The single currency is experiencing heavy selling pressure, after both manufacturing and services sectors showed contractions over July, weighing heavily on the EU’s economic outlook. The downbeat outlook could continue to weigh on the single currency through to tomorrow’s session.

Then, the latest Ifo business climate index is due to print, reflecting business confidence over July. A slight downtick is expected, from 88.5 to 88, which could dent EUR by reflecting a continual decline in optimism within the bloc’s largest economy.

However, these losses could be somewhat alleviated by interest rate hike bets from investors. With the European Central Bank (ECB) expected to post another 25bps hike this week, these bets could serve to cushion EUR from deeper losses.

Furthermore, a souring market mood could bring some buoyancy to the common currency, owing to its less risk-sensitive nature compared to Sterling.

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