Next week promises to see the GBP/EUR exchange rate experience more volatility as uncertainty over the performance of the UK and Eurozone economies builds.
The Pound exchange rate ended the week higher against the Euro as more dismal economic data out of the Eurozone weighed heavily upon the single currency and increased concerns that region is sliding towards a triple dip session.
Against the US Dollar, Sterling fell for a fourth consecutive month to post its worst losing streak in four years as recent data releases out of the UK have indicated that the nation’s economy is slowing and suggests that the Bank of England will leave interest rates unchanged until the latter part of 2015.
As next week is the start of a new month, the market will be focusing on the release of the latest batch of Purchasing Manager Index reports.
Both the UK and Eurozone are due to publish manufacturing PMI’s on Monday and their outcomes will depend on the movement of the GBP/EUR exchange rate.
The UK data is forecast to show that output continued to expand but eased from the previous month’s level.
European data meanwhile is forecast to show that production in France stayed steady but improved in Germany and the wider Eurozone. If that is the case then the Euro will likely claw back some of the ground it lost last week.
On Tuesday, the focus turns to the USA and Eurozone PPI data. After the previous weeks, disappointing inflation data economists will need to see an improvement in PPI if concerns over deflation are to be eased. Economists are forecasting that month on month PPI will show stagnation at 0% whilst year on year it is expected to weaken further from -1.4% to 1.5%. Softer figures and the Euro will weaken.
GBP/EUR Forecast to Move Midweek after more PMI data from the UK and Eurozone
Of particular importance will be the UK and German Services PMI’s as that sector is the most dominant in both nations. The PMI for Germany is expected to show a slowdown.
Investors will be hoping for an improved figure, if not then the Eurozone engine will officially become another sick man of Europe.
Eurozone retail sales are also due and are expected to show that they fell sharply is September.
Thursday sees the latest Bank of England policy meeting decision. The bank is expected to leave interest rates unchanged at 0.5% and maintain the monthly bond-buying programme at £375 billion. If policy makers appear to be more dovish than last month, we can expect the Pound to weaken.
Also due is the latest UK Manufacturing Production and Industrial Production data.
The ECB is also due to announce its interest rate decision and will hold a press conference.
GBP/EUR Could Gain
Economists will be watching for any hints that the bank could be considering implementing further monetary stimulus measures in order to tackle low inflation and encourage economic growth across the Eurozone.
Friday is likely to be volatile for the GBP/EUR exchange rate as more data is due for Germany and the UK sees balance of trade data published.
Further disappointing data out of Germany and concerns over the nation sliding into recession are sure to rise.
The UK balance of trade data is forecast to show that the deficit widened in September as Eurozone demand remained weak.
UPDATE:
On Monday the Pound surged higher against the Euro to trade back above the 1.28 level. Stronger than forecast Manufacturing PMI data out of the UK gave the Pound an unexpected boost against its battered rival. Markit research group said the U.K. manufacturing purchasing managers’ index rose to 53.2 this month from 51.6 in September.
Analysts had expected the index to slip to 51.2 in October. The Euro meanwhile was weakened after Eurozone PMI data showed that the region continued to suffer stagnation as production in France and Italy continued to disappoint. Spain and Germany saw some improvement but those were wiped by the weakness i the other parts of the Eurozone.
The data did little to ease market concerns over the prospects for the Eurozone to avoid sliding into a triple dip recession by the end of the year.
