The Euro to Pound Sterling (EUR/GBP) exchange rate was trending slightly higher prior to the Bank of England and European Central Bank rate decisions.
The Pound was putting in a patchy performance against almost all of its biggest currency rivals as a result of concerns that the Scottish referendum might result in the nation’s independence – an event which would have the potential to devalue the Pound by 3% to 5%.
Even two better-than-forecast economic reports for the UK failed to lift Sterling, and the Euro to Pound exchange rate hit a low of 0.7963 on Wednesday.
The impact of the Scottish referendum outweighed the UK’s impressive Services PMI and helped the Euro advance on the Pound.
The services index climbed from 59.1 to 60.5 in August with new business increasing and a sturdy pace of job creation being maintained.
The result represented the steepest monthly spike in activity for 10 months.
David Noble, of the Chartered Institute of Purchasing and Supply, had this to say of the result; ‘The UK service sector grew at its fastest rate for ten months in August but reductions in confidence combined with capacity pressures mean that growth may be close to peaking. New business volumes continued to rise, albeit at a gentler rate, as market conditions remain favourable and clients commit to new contracts. However, the outlook is not as bright as previous months, as a mixed bag of concerns, principally over how robust the business pipeline will continue to be, resulted in confidence declining to a 15-month low.’
The Euro to Pound exchange rate contend trending higher even as the Eurozone’s final services and composite PMI’s were negatively revised and the Eurozone’s retail sales figures came up short.
On a month-on-month basis retail sales were shown to have declined by -0.4%, slightly more than the -0.3% slide anticipated.
In the view of economist Howard Archer; ‘July’s 0.4% drop in Eurozone retail sales volumes fuels concern that recently weakening consumer confidence across the Eurozone is starting to lead to increased caution in spending, thereby harming growth prospects.’
The Euro did continue to trade close to a one-year low against the US Dollar.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast
Thursday is likely to be the most influential day for the EUR/GBP exchange rate, with both the Bank of England and European Central Banks scheduled to deliver their interest rate decisions.
Additional economic reports, including German Factory Orders and Construction/Retail PMI will also be worth noting.
Although the BoE is unlikely to make any adjustments to policy, the ECB might be persuaded to take additional steps to protect the currency bloc from the threat of persistently low inflation and external pressures.
If action is taken, or if ECB President Mario Draghi attempts to talk the common currency lower during his policy statement, the Euro could come under pressure and the Pound may advance.
On Wednesday the Euro to Pound (EUR/GBP) exchange rate hit a high of 0.7996.
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