The Pound is powering ahead versus the Euro thanks to a trio of sanguine private sector PMI results.
GBP/EUR Hits 3-Week High
The Pound to Euro exchange rate inched higher by 50 pips last Wednesday in response to a 10.1% Eurozone unemployment print, which underwhelmed expectations of 10.0%, and a 0.2% Eurozone CPI score, which undershot estimates of 0.3%. The disappointing data fuelled talk of further stimulus from the European Central Bank and this helped drive GBP/EUR to a three-week high.
Sterling surged again on Thursday, rallying by over a cent, as British manufacturing activity printed much higher than analysts had anticipated. The factory output PMI came in at a 10-month high of 53.3 in August, which was significantly stronger than the market consensus of 49.0. Considering that July’s report had shown the industry contracting at its fastest rate for three years, holders of Sterling were very pleased by the optimistic print, which suggests Britain may avoid sliding into recession in the second half of the year.
Friday’s construction PMI also impressed, printing at 49.2 compared to expectations of 46.5. Traders took GBP/EUR higher by around 70 pips to hit a new monthly high in reaction to the report.
Services Rebound at Fastest Pace in 20 Years
The trio of positive private sector reports was completed earlier this morning when the dominant service sector, which accounts for over 70% of the UK economy, came in at 52.9 – marking the largest rebound in the index’s 20-year history. Demand for the Pound increased following the encouraging reading as Bank of England stimulus bets receded in response to the rosier economic outlook.
Week Ahead
GBP/EUR is currently trading at a one-month high, relatively close to significant psychological resistance at 1.20. The hat trick of robust PMI indicators suggests the British economy may be more resilient to the shock of ‘Brexit’ than initially expected and this enhanced outlook could help drive Sterling higher over the next week.
The main event to look out for over the next few days is Thursday’s ECB policy announcement. President Mario Draghi is expected to leave rates and stimulus measures unchanged but any dovish remarks could easily weigh on the single currency. On the other hand, any efforts to talk down the prospect of additional stimulus could bolster the Euro’s appeal.
Other important events include Wednesday’s UK industrial production report and statement from BoE Governor Mark Carney and Friday’s Bank of England consumer inflation expectations index.