The Pound to Euro (GBP/EUR) exchange rate was trending in a slightly softer position on Thursday despite an unexpected increase in the UK’s Construction PMI. As investors focus on the upcoming European Central Bank interest rate announcement, the GBP/EUR exchange rate drifted below 1.28 to brush a low of 1.2786.
Meanwhile, the Pound to US Dollar exchange rate pared recent declines on speculation that the ‘Greenback’ had been overbought. Yesterday’s mixed bag of US data releases and the speed with which the US Dollar has strengthened unnerved investors and the safe-haven asset consequently slipped against the majority of its currency counterparts. That being said, the GBP/USD exchange rate edged lower as the European session got underway.
As local trading progressed the Pound put on a patchy performance even as the UK’s Construction PMI surprised to the upside.
The gauge of construction rose from 64 to 64.2 last month. Economists had envisaged a softening to 63.5.
The rise in the index took it to an eight-month high.
The construction report outlined the slowest pace of residential activity gains for four months and an 11-month low business outlook confidence reading. There was, however, a sharp rally in activity in the civil and commercial engineering sectors.
The Pound to Euro (GBP/EUR) exchange rate hit a high of 1.2834.
According to Markit economist Tim Moore; ‘UK construction firms experienced a sustained and strong output recovery during September, in contrast to the weakening picture seen across the manufacturing sector at the end of this summer. […] Looking ahead, construction firms are more cautious about their prospects for output growth than at any time since October 2013. Although positive overall, a range of factors tempered business optimism in September, including strong cost pressures, concerns about skilled labour supply and signs that house building growth has cooled from the multi-year records set earlier in 2014.’
The Pound to US Dollar (GBP/USD) exchange rate hit a high of 1.6250.
The Pound was also affected by a statement from the BoE’s Financial Policy Committee. In the view of the FPC, the housing-market stimulus proposed by Chancellor of the Exchequer George Osborne won’t undermine the UK’s financial stability.
BoE Governor Mark Carney stated that the FBC believes ‘that the scheme does not pose material risks to financial stability, either directly or through its impact on the wider housing market.’
Additionally, BoE policy maker Kristin Forbes recently commented on the impact a stronger Pound has had on UK inflation. She stated; ‘Although this dampening effect fades over time, the simulations suggest that the drag could persist for several more quarters. The key implication is that Sterling’s appreciation that began early last year is still dampening inflation today.’
The GBP/EUR exchange rate was little affected by the Eurozone’s Producer Price Index. Producer prices were shown to have slipped by -0.1% in August on a month-on-month basis, as expected. Prices were down -1.4% on the year – a slightly steeper annual drop than the slip of -1.2% expected.
Pound Sterling (GBP) Exchange Rate Forecast
If the European Central Bank intimates that quantitative easing will be deployed in the near future it could have a considerable impact on the GBP/EUR exchange rate in the hours ahead.
The GBP/USD exchange rate could also slide if today’s US initial jobless and continuing claims figures impress.
Before the weekend a final burst of Pound Sterling volatility may be inspired by the UK’s Composite/Services PMI for September.
The US Non-Farm Payrolls report could also have an influence on the direction taken by Sterling.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6178,
Pound Sterling,,Euro,1.2798,
Pound Sterling,,Australian Dollar,1.8394,
Pound Sterling,,New Zealand Dollar,2.0534,
US Dollar,,Pound Sterling,0.6181,
Euro,,Pound Sterling,0.7814,
Australian Dollar,,Pound Sterling,0.5436,
New Zealand Dollar,,Pound Sterling,0.4868,
[/table]
