Pound to Euro News: GBP/EUR Exchange Rate Could Rally On Strong Services PMI

Pound Sterling (GBP) Exchange Rates Set to Fluctuate in Reaction to PMI Reports

The Pound to Euro (GBP/EUR) exchange rate remained fairly stable during the week between Christmas and the New Year, but we could see some more excitement during this week’s session.

Sterling softened in a knee-jerk reaction to this morning’s manufacturing PMI result, which saw the headline index slip from a four-year high of 58.2 to 56.3. However, the Pound recovered most of its losses once investors digested the details of the report, which pointed to robust output and upbeat order books going into 2018.

Tomorrow sees the UK construction report, which is tipped to show steady growth of 53.1. Accounting for only around 6% of UK GDP, the construction sector PMI rarely has a marked impact on demand for GBP/EUR. Thursday’s service sector report, on the other hand, could prove to be the first significant driver of demand in 2018.

Traders are primed for a slight improvement in services output, with the index tipped to rise from 53.8 to 54.0. If the dominant services industries are seen to have accelerated more swiftly then we could see Sterling rally versus the single currency – after all, the service sector accounts for over 70% of British economic output.

Eurozone Inflation Due, Falling CPI Could Boost GBP/EUR Exchange Rate

The Pound to Euro (GBP/EUR) exchange rate could push ahead further on Friday if Eurozone consumer prices soften, as expected. The European Central Bank appears reluctant to raise interest rates anytime soon due to persistent undershooting of the Eurozone CPI rate. This means that any negative movements in the price index could weigh on demand for the single currency. Analysts are primed for the report to slow from 1.5% to 1.4%, however, last week’s German CPI report actually came in at 1.7% compared to calls for 1.5%, so there is potential for a surprise to the upside.

Overall, the week’s data prints appear to favour a slight uptick in demand for the Pound.

Data Item Expectation

3rd January GBP Markit/CIPS UK Construction PMI (DEC) 53.1
3rd January EUR German Unemployment Claims Rate s.a. (DEC) 5.50%
4th January GBP Markit/CIPS UK Services PMI (DEC) 54
5th January EUR Eurozone Consumer Price Index Estimate (YoY) (DEC) 1.40%
John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron


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