The Pound to Euro exchange rate (GBP/EUR) is likely to be dictated by this morning’s slew of Purchasing Managers Index results. Service Sector PMI data is due to be released across Europe but the most important indicators will come from Germany, the UK and the Eurozone as a whole.
So far this week the UK has seen Manufacturing reach a 2-year high of 52.5 and Construction strike a yearly high of 51.0. The UK Service Sector, which accounts for around 70% of British economic output, reached a 14-month high of 54.9 during May and this morning’s release is forecast to see the index remain close to this figure at 54.5. Although this dataset appears very Sterling-positive, traders have been reluctant to buy into GBP/EUR too strongly due to uncertainty surrounding new Bank of England Governor Mark Carney’s stance on monetary easing. The Canadian Central Banker has previously hinted that he prefers ultra-accommodative monetary easing, but it remains to be seen whether he will look to introduce a scheme of this nature during his first week in charge.
Eurozone PMI data has failed to keep up with the British equivalent so far this week: the Manufacturing PMI contracted at a rate of 48.8, as German factory output stalled for a second month and the Eurozone Service Sector is forecast to have declined at a rate of 48.6 during June. The overall Eurozone Composite PMI, which takes into account both Manufacturing and Services across the whole currency bloc, is predicted to print at 48.9; a score of this nature has the potential to weigh on the single currency and allow Sterling to strengthen.
So far this week GBP/EUR has declined by a mild -0.2 cents, but it is unlikely that the Euro will be able to hold off the Pound for much longer if Sterling is not hampered with any further inflationary quantitative easing on Thursday.
Eurozone Retail Sales are expected to have fallen -1.9% in May and sentiment towards the single currency is also being affected by the region’s dismal employment prospects; it was reported yesterday that the 17-nation bloc’s Unemployment Rate has reached a fresh all-time record high of 12.2%. The Eurozone Producer Price Index came in below economists’ expectations at -0.3%, which also worked against the Euro because the softening inflation picture gives the European Central Bank slightly more room to ease monetary policy.
Another factor that is weighing over the single currency is the danger that Greece may not receive its latest tranche of aid from the troika of EU, ECB and IMF officials. Due to a failed plan to sell the country’s natural gas production company, the Greek government was forced to act quickly in order to raise the funds necessary to convince the troika that it can meet its fiscal requirements for the year. To a general chorus of dismay, Greek officials decided to shutdown its state broadcaster, ERT, but it is uncertain whether the troika will give Greece the go ahead for its next installment of aid.
If the €8.1 billion is withheld, the embattled Hellenic nation runs the risk of bankruptcy and could be ejected from the Eurozone. Common sense, and past instances of this nature, suggests that the deal will be pushed through at the last minute. The Euro has remained remarkably stable in response to the Greek threat as markets, suffering from crisis fatigue, refuse to be dragged into the latest Athenian odyssey.
A strong UK Service Sector result has the potential to send the Pound to Euro exchange rate (GBP/EUR) above the 1.1700 mark.
Comments are closed.