Bank of England Growth Forecasts Fail to Bolster Pound Euro Exchange Rate
The Pound to Euro (GBP/EUR) exchange rate slipped lower in spite of the Bank of England (BoE) lifting its growth forecasts.
While policymakers expressed a greater degree of confidence over the economic outlook this was not enough to offer Pound Sterling (GBP) any boost.
Although the central bank expects to see growth return to its pre-Covid-19 level in the fourth quarter of 2021 this still highlights the lost momentum of the last year.
As a result, the Pound remained biased to the downside at this stage, especially as the BoE looks set to maintain its dovish policy stance for the foreseeable future.
German Factory Orders Increase Shores up Euro (EUR) Demand
Support for the Euro (EUR) picked up, meanwhile, in response to a sharper-than-expected increase in German factory orders.
As factory orders delivered growth of 3% on the month in March this helped to encourage hopes of a greater underlying resilience within the Eurozone’s powerhouse economy.
Even though the Eurozone fell back into a state of technical recession in the first quarter this latest sign of German manufacturing strength helped to shore up EUR exchange rates.
While the German construction PMI fell short of forecast in April, keeping the sector in a state of contraction, this was not enough to put any particular pressure on the single currency.
The mood towards the Euro could sour on Friday, however, with the release of March’s set of German trade data.
With the headline trade surplus looking set to narrow on the month confidence in the outlook of the German economy could take a fresh blow ahead of the weekend.
Strong UK Construction PMI Forecast to Offer Pound Euro Exchange Rate Boost
On the other hand, the Pound could find a degree of support on the back of April’s UK construction PMI.
With the index forecast to deliver another improvement on the month, growing from 61.7 to 62.3, this could offer investors fresh incentive to pile into the Pound.
Although the construction sector only accounts for a small fraction of the UK gross domestic product any strength here could still help to shore up the Pound to Euro exchange rate.
A stronger construction sector may encourage hopes of the wider economy continuing to recover its lost momentum in the second quarter, setting the UK on the path to an imminent recovery.
However, if the PMI falls short of forecast this could leave the Pound vulnerable to another bout of selling pressure in the near term.
As markets have already priced a significant degree of economic optimism into GBP exchange rates this could limit the impact of any further positive data.
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