Pound Sterling to Euro (GBP/EUR) Exchange Rate Tumbles after PMI Reports
The Pound Sterling to Euro (GBP/EUR) exchange rate moved even further away from its recent 7-year high on Tuesday as the third and final Markit PMI report came in below forecast levels.
On Friday the UK’s Manufacturing PMI fell short. This was followed on Monday by a disappointing Construction figure. These reports alone contributed to investors pairing their Bank of England (BoE) interest rate hike expectations and caused a widespread softening in the Pound.
However, the GBP/EUR exchange rate fell by a further 0.3% on Tuesday as the UK’s Services PMI – the most influential report of the bunch, registered a much steeper-than-anticipated decline.
The Pound Sterling to Euro (GBP/EUR) exchange rate fell to a low of 1.2725 after the report was published and held these losses throughout the European session.
The GBP/EUR exchange rate could recoup some of its recent losses tomorrow if the Eurozone’s annual Consumer Price Index comes in at or below -0.1% tomorrow – as economists expect to be the case.
Earlier…
GBP/EUR Exchange Rate Pares Gain
Ahead of the release of Eurozone investor confidence data, the Pound Sterling to Euro (GBP/EUR) exchange rate gained 0.25%.
The Euro was broadly softer as a result of European Central Bank (ECB) stimulus concerns and the GBP/EUR pairing achieved a high of 1.2808
As the European session continued, fluctuations in the GBP/EUR pairing occurred in response to the UK’s less-than-impressive construction output report and the Eurozone’s better-than-forecast Sentix Investor Confidence gauge.
However, while the Pound Sterling to Euro (GBP/EUR) exchange rate initially slid on Monday, a concerning inflation report for Germany limited declines.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trading in the region of 1.2768
Earlier…
The Pound Sterling to Euro (GBP/EUR) exchange rate achieved a 7-year high in the early hours of 2015, climbing above the 1.2908 level.
While the GBP/EUR pairing later shed over 0.6% in response to UK data, there is potential for the Pound to breach the 1.30 level by the end of January.
GBP/EUR Exchange Rate Undermined by UK Data
The increasing odds of the European Central Bank (ECB) rolling out additional stimulus to counter the threats of deflation and recession drove the Euro lower against most of its currency rivals on Christmas Eve.
A softer Euro is an essential part of the ECB’s plans to bolster growth in the currency bloc, so the central bank is no doubt welcoming the downtrend in the common currency witnessed in the second half of the year.
Global strategist Kit Juckes said of the Euro’s performance; ‘The Euro-bearish consensus was struggling hard for the first half of the year, but it has come good as the ECB has driven rates down. The best thing the ECB can try to engineer is still a weaker Euro.’
The ECB’s chief economist, Peter Praet, insinuated that quantitative easing will be deployed in the months ahead as the tools currently being utilised by the central bank aren’t enough to counter all the issues the Eurozone faces.
These remarks were seconded by ECB President Mario Draghi towards the close of the week.
Draghi commented; ‘The risk that we do not fulfil our mandate of price stability is higher than six months ago. We are in technical preparations to adjust the size, speed and compositions of our measures early 2015, should it become necessary to react to a too long period of low inflation.’
The Euro to US Dollar (EUR/USD) exchange rate stumbled to a four and a half year low in response to Draghi’s hints.
As highlighted by forex strategist Niels Christensen; The EUR/USD pairing ‘could break below $1.20 since there is a risk of a very low inflation reading out of the Eurozone next week. That will just add to pressure on the ECB to take measures when it meets later this month.’
However, the Euro went on to gain on the Pound as the UK’s Manufacturing PMI showed that growth in the sector slowed at the end of 2014.
Over the course of the European session the GBP/EUR exchange rate fell back below 1.28 to trend in the region of 1.2790, but the pairing could post gains in the weeks ahead.
Will GBP/EUR Push above 1.30 after Greek Election?
While stimulus speculation will play a considerable part in the direction taken by the GBP/EUR exchange rate over the next few weeks, investors will also be exerting caution ahead of the Greek snap election.
If opposition party Syriza is victorious, as many industry experts believe will be the case, the future of Greece as a Eurozone member could be put at risk and the Euro is likely to tumble against its currency peers.
The GBP/EUR exchange rate could even advance beyond 1.20 if Syriza wins and the ECB bows to the pressure and announces the introduction of a quantitative easing scheme when it gathers on the 22nd of January.
This Week’s Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast
The Pound Sterling to Euro (GBP/EUR) exchange rate could return to its seven-year high next week if the Eurozone’s economic reports (including employment and inflation figures) come in below forecast levels.
In the run up to the ECB’s first policy meeting of 2015, any negative reports for the currency bloc could influence the fiscal policy adopted by the central bank, so all will be heavily scrutinised and have the potential to drag the Euro lower.
The GBP/EUR pairing could also advance beyond 1.29 if the UK’s Services PMI impresses.
The measure of the UK’s services sector is believed to have edged slightly lower at the close of 2014. As the services sector accounts for 70% of total economic growth, a surprise to the upside would give Sterling a boost ahead of the Bank of England’s (BoE) policy meeting.
As economists are forecasting that the BoE won’t take any action at its upcoming gathering, a static interest rate decision would have little impact on the Pound. However, if any central bank officials hint that interest rate hikes could be delayed even further, the GBP/EUR uptrend may be halted.
On Sunday the Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.2767
