GBP/EUR up 0.3% as Optimism Rises about BoE Rate Hike
UPDATE: Pound Sterling to Euro (GBP/EUR) exchange rate investors spent most of Wednesday’s session digesting the latest UK services stats, and optimistic comments from economists.
Many analysts noted that the data made them more confident that the Bank of England (BoE) was on track to hike UK interest rates as soon as the August policy decision next month.
According to James Smith, economist from ING:
‘This, much like the recent data emerging from the retail sector, suggests that the economy is having a better ride in the second quarter than in the first – and for the Bank of England, this will be put a fairly big tick in the August rate hike box’
Pound to Euro Exchange Rate Hits Week’s Best Levels in Reaction to UK Services PMI
UPDATE: Sterling (GBP) continues to strengthen on Wednesday morning, following the publication of Britain’s June services PMI from Markit.
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending comfortably in the interbank region of 1.13 for the first time all week – an increase of 0.35% on today’s opening rate.
While signs of a skill shortage in the services sector have concerned some economists, the services report has ultimately made investors more confident that the Bank of England (BoE) will hike UK interest rates in the coming months.
Pound to Euro Exchange Rate Climbs on Hat Trick of Stronger UK PMIs
For most of the week so far, the Pound Sterling to Euro (GBP/EUR) exchange rate has been trending in a relatively tight band as investors anticipated Wednesday’s key UK services results. In comparison, data due on Thursday and Friday is unlikely to be as influential.
Last week, Brexit concerns saw GBP/EUR tumble from the interbank level of €1.13 to a low of €1.12 for the first time in a quarter. On Monday and Tuesday this week, GBP/EUR trended tightly around the wholesale rate of €1.13.
Sterling (GBP) had edged higher this morning on decent UK manufacturing and construction data, and following the publication of Markit’s anticipated UK services PMI GBP/EUR has trended more comfortably in the region of €1.13 again – a 0.2% increase.
The UK services PMI was forecast to have remained at 54.0, but instead impressed GBP investors by jumping to 55.1, indicating Britain’s economy had rebounded more than expected towards the end of Q2 2018.
The Euro (EUR), on the other hand, has struggled to hold its ground due some mixed Eurozone ecostats in recent sessions.
While Germany’s latest political jitters have all but faded, for now, the European Central Bank’s (ECB) caution on monetary policy has kept pressure on the shared currency.
Pound (GBP) Exchange Rate Strength Limited by Brexit Jitters
Although this week’s UK PMI data has beaten forecasts, most of the reports also indicated that there was slack in the UK economy and that broad uncertainties remain about the economic outlook.
The manufacturing PMI, for example, showed businesses were a little gloomy about the future due to the uncertainties of the Brexit process.
Market concerns about US trade protectionism and how it may impact various economies around the globe have also dented the UK economic outlook.
Rob Dobson, Director at IHS Markit, expressed his opinion on this:
‘How likely such a revival is remains in some doubt, with the June survey also seeing business optimism drop to a seven-month low amid rising concerns about possible trade tariffs, the exchange rate and Brexit uncertainty.’
Businesses are increasingly anxious about the lack of progress made in UK-EU Brexit negotiations so far this year. Industry leaders and economists have been urging officials to ramp up the pace in order to give assurances on how businesses will survive post-Brexit.
Euro (EUR) Exchange Rates Supported as Eurozone PMI Results Beat Projections
Demand for the Euro improved a little on Wednesday morning as investors digested the Eurozone’s mixed June PMI results from Markit.
While Markit’s Eurozone manufacturing PMIs had been underwhelming at the beginning of the week, the bloc’s services sectors actually outperformed projections.
France’s services PMI disappointed, but Germany and the overall Eurozone’s figures came in with stronger-than-expected stats of 54.5 and 55.2 respectively.
As a result of the stronger services figures, the Eurozone’s overall composite PMI beat projections too. The figure was forecast to climb from 54.1 to 54.8, but instead came in at 54.9.
According to Markit Chief Economist Chris Williamson, the outlook was pretty optimistic too:
‘Eurozone growth regained momentum in June, rounding off a respectable second quarter performance, for which the survey data point to GDP rising by just over 0.5%. June also saw new orders and employment growth perk up, suggesting rising demand continues to motivate companies to expand capacity.’
Pound to Euro Exchange Rate Forecast: GBP/EUR Could Climb Further
As Britain’s services PMI beat forecasts, Bank of England (BoE) interest rate hike bets could rise somewhat, supporting a recovery in Sterling.
The week’s most notable UK and Eurozone data has been published now, but the German data due for publication on Thursday and Friday also has the potential to influence the Pound to Euro (GBP/EUR) exchange rate.
Thursday will see the publication of Germany’s May factory orders results, as well as the nation’s June construction PMI. A Eurozone retail PMI will also be published on Thursday.
Friday will see the release of Germany’s May industrial production results, as well as France’s May trade balance report.
If these reports have no notable impact on Euro trade, GBP/EUR movement could still be influenced by Sterling – especially if there are any developments regarding Brexit or the Bank of England.
If Bank of England Governor Mark Carney makes any surprising comments during his speech on Thursday, the Pound to Euro (GBP/EUR) exchange rate is likely to react accordingly.