The Pound Sterling to Euro exchange rate is making small gains today after tumbling around -2% yesterday.
Sterling’s cautious recovery begins after markets were shocked by suggestions from the Bank of England (BoE) that the interest rate hike delivered yesterday was a one-off.
GBP EUR is currently up 0.3% and trending around €1.12.
Little Support for GBP EUR Exchange Rate despite Six-Month High UK Services PMI
Sterling is tentatively regaining some of yesterday’s losses after today’s release of the October services PMI has shown the sector growing at its fastest pace in six months.
The index was expected to slow from 53.6 to 53.3, but instead has climbed to 55.6.
While it follows in the footsteps of this week’s manufacturing and construction PMIs to beat forecasts with a rise further into growth territory, IHS Markit Chief Business Economist Chris Williamson warns that the outlook for the economy isn’t as rosy as the headline figures suggest.
He explains; ‘The latest PMI surveys bring mixed news on the economy. While an upturn in business activity growth adds some justification to the Bank of England’s decision to hike interest rates for the first time in a decade, a deeper dive into the numbers highlights the fragility of the economy and points to downside risks for the outlook.’
Williamson pointed towards falling business optimism, slowing employment growth and the general uncertainty surrounding Brexit.
This is limiting the Pound’s ability to recover based upon the positive headline figure.
Pound Recovering against Euro after Bank of England Rate Hike Disappoints Markets
The Pound had tumbled sharply yesterday following the latest monetary policy decisions from the Bank of England.
As widely expected, the Monetary Policy Committee (MPC) voted to hike interest rates by 0.25%, lifting borrowing costs from a 323-year low back to pre-referendum levels of 0.5%.
However, markets have largely been trading Sterling on the assumption that this hike would be followed quickly by others over the coming months, but the BoE signalled that this was not the case.
In fact, policymakers suggested that there will only need to be two more hikes of 0.25% each between now and the end of 2020 in order to combat inflation.
Spanish Unemployment Growth and Focus on US Data Keeps Euro Soft
The Euro is largely on soft footing today, thanks to a near complete absence of Eurozone data on the economic calendar.
Markets are instead chasing the more risky currencies, as well as bracing themselves ahead of this afternoon’s key US data releases.
The only report of note released so far was the Spanish unemployment change figures, which showed that the growth in the number of people out of work accelerated in October.
Joblessness grew by 27,900 in September; a rate that more-than doubled last month with an additional 56,800 persons out of work.
US Data to Weaken Euro and Help GBP/EUR to Recover this Afternoon?
There is nothing of note on the Eurozone data calendar today, but numerous high-impact releases from the United States could help the GBP EUR exchange rate to advance, as the Euro will weaken across-the-board if the US Dollar strengthens following the day’s data.
The most high-profile release is the October non-farm payrolls report. This is expected to show a surge in job growth this time round, partly encompassing a correction in the labour market after September’s hiring was adversely impacted by tropical storms and hurricanes.
US unemployment and the latest ISM non-manufacturing/services PMI will also be released.
Positive results here will likely weaken the Euro, enabling the Pound to advance.