UK Construction PMI Bettered Forecast to Boost Pound Euro Exchange Rate
Despite the German unemployment rate showing a surprise fall from 6.1% to 6.0% in October this failed to particularly boost demand for the Euro (EUR). The appeal of the single currency was somewhat muted on Wednesday thanks to a mixed raft of Eurozone Manufacturing PMIs, with Italian growth having unexpectedly slowed on the month. Altogether this was not seen to reduce the likelihood of the European Central Bank (ECB) extending its quantitative easing program in December, something which is continuing to limit demand for the Euro.
Confidence in the Pound (GBP) was boosted, meanwhile, by a surprise uptick in the UK Construction PMI. With both the manufacturing and construction sectors remaining in a state of growth this encouraged greater confidence in the outlook of the domestic economy at the start of the fourth quarter. This stronger showing was seen to reduce the likelihood of the Bank of England (BoE) opting to lower interest rates at its November policy meeting, a prospect that shored up the Pound Euro (GBP EUR) exchange rate.
GBP EUR Exchange Rate Forecast: Increased BoE Easing Bias Could Weigh Heavily on Pound
The tone of the BoE’s meeting minutes will closely watched by investors, with any more dovish sentiment increasing the odds of policymakers opting for further easing in the near future. If markets view a 2016 interest rate cut as a continued possibility then the GBP EUR exchange rate is expected to weaken. However, should the minutes indicate a greater willingness to sit tight and hold steady the Pound could find a fresh rallying point.
While Brexit-based uncertainty is also expected to keep Sterling under pressure, the possibility remains for a more substantial recovery. As Derek Halpenny, European Head of GMR at BTMU, noted:
‘We continue to believe that the scale of Pound depreciation has over-extended and the longer we stabilise around current levels the greater the risk becomes that we will see a liquidation of short GBP speculative positions and a recover of the Pound against both the Dollar and the Euro.’
On the other hand, the Euro may remain on a stronger footing if the US Dollar (USD) stays on a bearish trend. As the US presidential election nears its conclusion markets have been taking a more cautious view, hedging against the possibility of a Trump victory. With risk appetite also softened this is likely to continue pushing investors towards rival safe-haven assets, with the Euro set to benefit especially from the diminished appeal of the ‘Greenback’. Even so, if Hilary Clinton ultimately emerges as the victor then the GBP EUR exchange rate could see a bounce higher.
Current Interbank Exchange Rates
At the time of writing, the Pound Euro (GBP EUR) exchange rate was trending narrowly at 1.10, while the Euro Pound (EUR GBP) pairing was trending lower in the region of 0.90.
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