After relatively flat trade in recent weeks, the Euro Pound outlook has improved this week as Britain’s June PMIs failed to meet expectations. However, the outlook is weighed by uncertainty about the European Central Bank’s (ECB) forward guidance. EUR GBP touched on the level of 0.88 on Wednesday after trending just above 0.8770 for most of the week.
Euro (EUR) Advances Limited by European Central Bank (ECB) Uncertainty
While recent Eurozone ecostats have been largely supportive, the Euro outlook has remained relatively flat, with investors hesitant to continue buying into the shared currency.
The Euro outlook has been limited by European Central Bank (ECB) bets. The ECB has sent mixed messages about the Eurozone’s monetary policy outlook.
Last week, ECB President Mario Draghi indicated the bank may need to begin discussing the most appropriate and ‘prudent’ way to adjust monetary policy before the end of the year.
Some investors took this to mean that the bank was likely to actually lighten some of its aggressive quantitative easing (QE) measures by the end of the year, but ECB sources asserted that Draghi had simply intended to raise the possibility.
Investor hopes for tighter Eurozone monetary policy in the foreseeable future were dampened on Tuesday, as ECB chief economist Peter Praet argued it was still too early to withdraw the bank’s stimulus measures.
He stated that there would need to be stronger inflation trends before the bank’s mission could be considered a success.
This week has also seen the publication of the Eurozone’s final June PMIs from Markit, which beat expectations in manufacturing and services prints and rounded off the Eurozone’s best quarter for private sector activity since 2011.
Despite this, ECB speculation has kept Euro trade relatively flat. The Euro is unlikely to see any big shifts in movement until further forward guidance is provided by ECB officials, or key Eurozone inflation stats are published.
Overall though, analysts predict the Euro will continue to advance in the long run.
Pound (GBP) Outlook Dampened by Underwhelming PMIs
Last week’s hawkish Bank of England (BoE) comments surprised investors, but analysts were careful to note that BoE Governor Mark Carney’s hawkishness relied on the resilience of Britain’s economy.
This week’s UK June PMIs from Markit have only worsened concerns that Britain’s economy may not be as resilient as hoped for the rest of the year.
Throughout the week so far, manufacturing, construction and finally services PMIs have fallen short of analyst expectations, indicating that Britain’s economic activity was slowing more than expected towards the end of the second quarter.
The most notable of these was the services PMI, as services account for a considerable chunk of Britain’s economic activity and typically have an impact on the nation’s Gross Domestic Product (GDP).
Services were projected to slip from 53.8 to 53.5 in June, but dropped to a slightly worse 53.4. While it was close to expectations, it still indicated UK citizens may not be coping well with the ongoing household pay squeeze.
According to Markit’s chief economist, Chris Williamson, the reports suggest that Britain’s economy could slow further over the summer months.
This has dampened hopes for the Bank of England to tighten monetary policy any time soon, and the Pound outlook has weakened.
EUR GBP Interbank Rate
At the time of writing this article, the Euro Pound exchange rate trended in the region of 0.8780. The Pound Euro exchange rate traded at around 1.1385.
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