ExchangeRates.org.uk - At the time of writing, GBP/EUR is trading at €1.1906, having gained over the course of the morning. The Pound (GBP) firmed against the majority of its peers yesterday, supported by the release of positive PMI data. In July, activity in the UK’s manufacturing sector expanded to 51.8; service sector activity also rose on the previous reading, though missed forecasts by 0.1. Comments from industry officials were upbeat regarding the data. S&P Chief Business Economist Chris Williamson remarked that:
‘Companies often commented on an improvement in market confidence and the securing of new contracts, following some reports of a pause in client spending decisions prior to the general election.’
Moreover, analysts noted that it was the ninth consecutive month of expansion in the service sector, despite the reading falling short of expectations. Higher demand for services led firms to increase their staffing numbers, while input cost inflation eased to a 41-month low. Headwinds relating to the Bank of England (BoE)’s interest rate stance appear to have abated, as investors come around to the possibility of an interest rate cut in the near term. The BoE’s monetary policy decision will be a close call, following mixed messaging from central bank officials in recent weeks. One of the latest comments came from known dove Swati Dhingra, who remarked:
‘If we're going to start moderating from the very high level of interest rate that we are at now ... it is going to take some time for that to happen, for us to moderate it as well as for that to then feed into the real economy.’
Euro (EUR) Trades Mixed, Gains Capped by PMI Data
The Euro sank against the Pound on Wednesday, though climbed in other exchange rates as upbeat economic forecasts lent some support. Capping gains was weak PMI data for the month of July. Manufacturing activity in the Eurozone dropped last month according to preliminary data: this month’s reading was expected to rise towards expansion territory but instead contracted further. Service sector activity continued to expand, but missed forecasts, printing at 51.9 rather than 53 as predicted. Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented on the release:
‘It feels a bit like it as the Eurozone economy barely moved in July. According to anecdotal evidence, French service providers increased their business activity in July... In contrast, demand in the German manufacturing sector seems to have dragged down overall private sector output.’
Yesterday’s survey confirmed that expectations for the year ahead had also diminished. In the manufacturing sector, factories let employees go at the sharpest rate since December - the employment index fell to 46.8 from 47.5. Nevertheless, an upbeat economic assessment may have helped to prevent steeper EUR losses. The Eurozone economy was declared to be the third best performing in the G10 this year, with Rabobank’s senior FX strategist Jane Foley reporting:
‘This year, the EUR has largely shrugged off Germany’s sluggish production sector, France’s budget woes and the fairly widespread move towards right wing politics across the region. The Eurozone maintains a current account surplus which should offer the EUR some protection.’
GBP/EUR Exchange Rate Forecast: USD Performance to Influence Trade?
Looking ahead, a lack of significant data from the UK and the Eurozone today leaves GBP/EUR to trade upon external factors. The latest data from the Confederation of British Industry (CBI) may have some effect on the Pound. Business optimism is expected to have improved in the third quarter of the year so far, while industrial trends orders are expected to have increased - though the reading looks to remain in minus figures. Elsewhere, US data may affect wider currency dynamics: if the US Dollar (USD) performs well, the Euro could encounter headwinds due to the strong negative correlation between the two currencies. US durable goods orders are forecast to have increased by 0.4% in June, and GDP growth rate is also expected to have risen last month: if the predictions are correct, GBP/EUR could strengthen on a weaker single currency.
This content was originally published on ExchangeRates.org.uk