Pound to Euro Exchange Rate Slips from Highs Ahead of Thursday Services PMI
Thanks to a strong UK manufacturing report and expectations of Sterling (GBP) strength this month, the Pound to Euro (GBP/EUR) exchange rate has largely recovered last week’s losses so far this week.
After tumbling from 1.1434 to 1.1371 last week, GBP/EUR began to advance again. On Tuesday night the pair touched on its best level in over a week, 1.1475. GBP/EUR has since slipped slightly from these best levels.
Analysts expect the Pound to see strong performance throughout April, as this month is typically a good one for Pound trade.
However, this week’s UK data has been mixed so far and investors are anticipating UK services stats due Thursday before making any big movements on the currency.
If UK services beat expectations, the Pound outlook could rise as investors would become more confident that Britain’s economy is resilient amid the Brexit process, and that the UK economy could sustain tighter monetary policy from the Bank of England (BoE).
Pound (GBP) Exchange Rates Slip on Disappointing UK Construction PMI
Wednesday saw the publication of Britain’s March construction PMI from Markit, which unexpectedly printed a contraction despite being forecast to come in with slow growth.
UK construction was forecast to slip from 51.4 to 50.9, but instead slumped to 47.0.
This put it three points below 50.0, which is the point separating contraction from growth in the index.
As UK construction unexpectedly contracted, investors became anxious that Britain’s economy has not been as sturdy as expected in early 2018.
If followed Tuesday’s manufacturing PMI from Markit. While the manufacturing figure beat expectations and came in at 55.1, the previous figure was revised lower from 55.2 to 55.0 which slightly dampened Pound bullishness.
Sterling has still seen notable gains this week so far though and could gain further if upcoming UK stats impress.
Euro (EUR) Weighed as Eurozone Inflation Outlook Remains Subdued
The Euro (EUR) was unable to recover significantly against Sterling on Wednesday despite the weak UK construction data, as the latest Eurozone data also gave investors little reason to buy the shared currency.
The Eurozone’s March Consumer Price Index (CPI) projections simply met expectations, indicating that inflation was climbing but core inflation in the bloc remained subdued.
As analysts expected, year-on-year inflation rose from 1.1% to 1.4% in March, while the yearly core inflation rate remained at 1%.
The data followed last week’s inflation projections from Eurozone nations including Spain, Germany and France. Some of these projections fell short of expectations, causing concern that the Eurozone’s inflation outlook may be even more dovish than markets expected.
This week’s other Eurozone data has been mixed too. Tuesday’s German retail sales stats fell short of forecast in both prints, while Markit’s final March manufacturing PMIs for the bloc were mixed.
Pound to Euro (GBP/EUR) Forecast: UK Services PMI Could Influence Outlook
The Pound to Euro exchange rate could still see further gains by the end of the week, depending on the results of Britain’s services PMI, due Thursday.
As services make up a notable chunk of Britain’s economic activity, the services PMI is typically a good indication of how Britain’s economy is performing.
Markit’s services print is forecast to have slipped slightly from 54.5 to 54, but as UK construction unexpectedly contracted could services also come in well short of expectations?
If UK services disappoint, Sterling could shed some of its recent gains but a solid services report could instead boost the GBP/EUR outlook.
Eurozone services and composite PMIs will be published on Thursday too, as well as Eurozone retail sales data from February.
However, these are unlikely to impact the Euro outlook much. Investors are disappointed with the Eurozone’s subdued inflation outlook, which is keeping hawkish European Central Bank (ECB) speculation to a minimum.
As a result, the Pound to Euro (GBP/EUR) exchange rate is ultimately likely to sustain most of this week’s gains or climb higher thanks to the rising Pound outlook.
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