Pound Euro Exchange Rate Forecast: GBP/EUR Bolstered by UK Services PMI

Update: GBP/EUR Exchange Rate Rises on Upbeat Services PMI

The Pound Euro (GBP/EUR) exchange rate has is rallying this morning as markets welcome the UK’s latest Services PMI.

With the UK’s service sector accounting for around 80% of the country’s growth, the news that activity strengthened more than expected last month allowed the Pound exchange rate to rise.

Meanwhile further supporting the uptick in the GBP/EUR exchange rate this morning was the publication of the Eurozone’s latest retail sales figures.

Investors shied away from the Euro as data showed that sales growth slumped for a second consecutive month in January.

Growing Brexit Uncertainty Prompts GBP/EUR Exchange Rate to Slump

The Pound Euro (GBP/EUR) exchange rate suffered losses last week, falling well over a cent as Brexit concerns pressured Sterling sentiment.

The pairing’s heaviest losses came on the back of Theresa May’s rejection of the EU’s draft UK withdrawal agreement, with markets fearing that this could lead to a possible roadblock in talks.

Adding to these concerns was a warning from the EU’s chief Brexit negotiator Michel Barnier that there was no guarantee of a Brexit transitional deal.

These losses were further compounded by the UK’s latest PMI figures, which suggested growth in the UK’s manufacturing and construction sectors remain subdued in February.

Meanwhile the Euro’s advance last week faced some hurdles following the release of some disappointing data.

The main limiter on the single currency was a dip in inflation, with both Germany and the wider Eurozone reporting that inflation slowed in February.

Euro (EUR) Volatile as Italy Looks Set for Hung Parliament

The Euro is off to much slower start this week in the wake of Sunday’s general election in Italy.

While markets are still awaiting the official result, projections are suggesting that the vote will result in a hung parliament, with no single party winning enough of the vote to form the next government on its own.

This will mean lengthy coalition talks between the leading parties, with weeks of negotiations likely to result in prolonged political uncertainty within Europe’s third-largest economy.

On top of this, the surge in support for populist parties is likely to rattle many within the EU, with the Eurosceptic Five Star Movement and the League being the biggest winners of the vote.

Sterling (GBP) Bolstered by Uptick in Services PMI

The Pound looks set to advance today following the release of the UK’s latest Services PMI.

According to data published by IHS Markit the UK’s Services PMI climbed from 53 to 54.5 in February, roundly beating forecasts of a more modest rise to 53.3.

This rebound in activity was welcomed by markets, with analysts suggesting that when read alongside the Manufacturing and Construction PMIs this points to growth holding at 0.4% in the first quarter.

Chris Williamson, Chief Business Economist at IHS Markit said:

‘The PMI surveys so far collectively point to the economy growing by nearly 0.4% in the first quarter to indicate that a resiliently steady pace of expansion has been maintained.’

GBP/EUR Forecast: ECB Rate Decision in Focus

Looking to the week ahead the main driver in movement in the GBP/EUR exchange rate is likely to be the European Central Bank’s (ECB) rate decision on Thursday.

There has been considerable speculation recently over the possibility of the ECB hiking rates later this year, so any hints of a more hawkish outlook from the bank may push the Euro higher.

Meanwhile the UK will publish its latest trade figures at the end of this week, with forecasts that the trade deficit will have narrowed possibly strengthening the Pound.

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail