The Pound to Euro exchange rate remained relatively flat last week as robust UK data boosted Sterling and Macron’s French Presidential election victory bolstered the appeal of the single currency.
Hat-trick of Sturdy PMIs
Following news that UK GDP slowed from 0.7% to 0.3% in the first quarter of the year, a trio of private sector reports suggested that the British economy gained momentum in Q2.
First up was the manufacturing PMI, which smashed expectations of 54.0 and printed at a three-year high of 57.3 thanks to a surge in new orders. Next was the construction report, which detailed how new civil engineering and residential building projects helped push the index from 52.2 to a four-month high of 53.1 in April. And finally, the dominant service sector saw activity rise from 55.0 to 55.8 – the second highest result since 2015.
The upbeat private sector reports supported Sterling through the week as some traders bet that UK interest rates may start to rise over the next 12-18 months.
French Presidential Election Dominates
Eurozone data also came in positively last week, with Q1 GDP growth printing at 0.5%, retail sales rallying 2.3% and private sector output hitting a six-year high.
However, the most important matter for Euro traders was Sunday’s French Presidential election, which saw centrist, pro-EU Emmanuel Macron win a landslide victory over far-right, anti-EU Marine Le Pen. The single currency inched higher following the result but the Euro was unable to post any meaningful gains because traders had largely priced the result into the market. Investors also voiced caution as to how easily Macron will be able to implement his economic reforms.
Sure, the threat of the Eurozone’s second-largest economy leaving the bloc has been eradicated for the time being, but the French economic outlook is still rather choppy. Unemployment is close to 10%, national debt is rising to 100% of GDP and Macron’s En Marche! party may struggle to win a majority in June’s National Assembly elections.
Week Ahead
Some thought that GBP/EUR would start to slide if Marine Le Pen’s election bid failed, however, the Pound remains buoyant versus the single currency, suggesting we could see further upside movement in the pair.
The main event to look out for this week is the Bank of England’s ‘Super Thursday’ policy announcement. Interest rates and the asset-purchasing target are expected to remain on hold but any indication that higher rates could be implemented in the future would be liable to boost Sterling. Any dovish comments, on the other hand, could depress demand for the Pound.