Pound Sterling to Euro (GBP/EUR) Exchange Rate Fails to Advance on ECB Anticipation

Pound to Euro Exchange Rate Remains Steady on UK and Eurozone Services Data

Investors were hesitant to move too much on the Pound Sterling to Euro (GBP/EUR) exchange rate yesterday, as both the Pound (GBP) and the Euro (EUR) were weakened by different factors both political and economic.

Since opening this week at the interbank level of €1.12, GBP/EUR has seen mixed movement but the rate has generally not moved too far. Euro investors are waiting for more solid central bank news before making any movements on the shared currency, with the European Central Bank (ECB) holding its June policy decision today.

While the bank is not expected to make any changes to monetary policy, any shifts in tone on policy, or reaction to recent disappointing Eurozone data, could influence the Euro.

Pound investors, on the other hand, will remain focused on Brexit and political speculation amid a lack of notable UK data due for publication this week.

Pound (GBP) Exchange Rates Avoids Further Losses as UK Services PMI Beats Forecasts

While many factors continue to weigh on the Pound (GBP) this week, some of Wednesday’s data finally gave the British currency a little fresh support.

Following a contraction in both manufacturing and construction PMIs earlier in the week, Britain’s services PMI beat expectations by rising from 50.4 to 51.0 rather than the expected 50.6.

Thanks to resilience in Britain’s biggest economic sector, the overall composite PMI was able to hold above the key 50 point level separating contraction from growth.

However, while the services sector beat expectations, the data overall indicated that Britain’s economic activity was just barely above stagnation last month.

According to Chris Williamson, Chief Market Economist at IHS Markit:

‘It is clear that many businesses remain cautious in relation to spending and investing in the uncertain political environment, which is exacerbating the impact of a wider global economic slowdown on the UK.’

This uncertainty over Britain’s economic outlook, combined with dominating Brexit fears, is keeping the Pound under pressure.

Euro (EUR) Exchange Rates Limited Ahead of European Central Bank (ECB) Policy Decision

There were a multitude of factors influencing the Euro’s (EUR) movement yesterday, and with the ECB policy decision right around the corner the currency’s direction was mixed as investors remained hesitant to make any big moves.

The Euro found some support in the form of German and Eurozone services PMIs that beat expectations, as well as fresh weakness in the Euro’s rival the US Dollar (USD).

However, the shared currency was ultimately unable to register many gains, with the currency weighed down by market concerns about the upcoming ECB policy decision as well as revived Eurozone political uncertainties.

Fresh tensions between Italy and the EU bubbled up yesterday, as the European Commission (EC) indicated it may need to take disciplinary action against Italy due to the nation’s budget plans and debts breaking EU rules.

Italy’s government indicated it would be willing to discuss the issue, but Euro investors were still hesitant to buy the shared currency amid the news.

Pound to Euro (GBP/EUR) Exchange Rate Investors Anticipate European Central Bank (ECB) Decision

With the Pound to Euro (GBP/EUR) exchange rate’s movements mixed amid signs of economic weakness and continued political uncertainties, the main event this week for investors is likely to be today’s European Central Bank (ECB) policy decision.

The ECB is not expected to make any notable changes to monetary policy, but the tone the bank takes on the Eurozone’s economic outlook, as well as any reaction the bank has to recent Eurozone ecostats, could strongly influence the Euro (EUR).

In particular, investors are awaiting the bank’s reaction to the underwhelming Eurozone inflation data seen earlier in the week. If tomorrow’s Eurozone GDP data is surprising, the bank’s reaction will certainly be influential as well.

If the ECB shows a notably dovish shift, the Euro could weaken as quantitative easing (QE) bets would rise. However, if the bank surprises with an optimistic tone then GBP/EUR could weaken.

Tomorrow’s German factory orders and Eurozone employment change data could be influential for the Pound to Euro (GBP/EUR) exchange rate as well, while Pound (GBP) investors will await further UK political speculation.

Josh Jeffery

Contact Josh Jeffery