Pound Euro Exchange Rate to Trend Sideways on PMI Expectations?
The Pound Euro (GBP/EUR) exchange rate dipped today as German data printed better than expected while political headwinds cap Pound (GBP) gains. Looking ahead, trading may steady as both currencies come under pressure.
At the time of writing, GBP/EUR is trading at €1.1798, down 0.2% from today’s opening levels.
Euro (EUR) to Sink on Weak PMI Expectations?
The Euro (EUR) is supported against several of its peers so far this session, as Germany’s Ifo business confidence indicator printed higher than expected.
May’s data marks an unexpected 3-month high as both current conditions and expectations for the future improved; there are no signs of a recession at the moment in Europe’s largest economy.
Looking ahead however, tomorrow’s manufacturing and service-sector PMIs are expected to reveal a slowdown in both German and Euro area activity.
The ongoing war in Ukraine and a lag in Chinese production on account of Covid-19 lockdowns across Beijing and Shanghai City will likely have weighed upon Europe’s industrial capabilities, alongside increasing cost pressures.
Furthermore , businesses in the service sector may have been forced to hike prices in response to high Euro area inflation, which last week printed at 7.4%.
The data may reverse today’s optimism, as analysts also consider the financial burden of helping to fund reconstruction in Ukraine as well as supporting displaced Ukrainian citizens.
Pound (GBP) to Extend Downtrend on Poor UK Data?
The Pound is weakening against several of its peers today as lack of significant UK data exposes Sterling to losses, as well as a worsening global economic outlook, Brexit troubles and central bank policy divergence.
While markets already seem to have fully priced in at least 50bps of Federal Reserve rate hikes, the Bank of England outlook is uncertain; last week, BoE chief economist Huw Pill spoke out in favour of imminent rate hike action but other policymakers have been more dovish.
Meanwhile, tensions persist over the Northern Ireland protocol. A delegation of US politicians is currently visiting Ireland, putting pressure upon local politicians who seek support in upholding the Good Friday agreement.
Into tomorrow, weak UK PMI data may exert further downside against the Pound: UK manufacturing and services activity are both expected to have fallen in the month of May, demonstrating the global nature of supply chain issues and lower industrial output.
As in the Euro area, UK inflation rose to dizzying heights last week, with producer prices also up by more than expected. Amidst a tight UK labour market and demand for higher wages, business confidence is likely to have taken a hit, further weighing upon Sterling.
Comments are closed.