Pound Euro (GBP/EUR) Exchange Rate Improves as UK Services PMI Rises in January

GBP/EUR Exchange Rate Edges Higher, BoE Rate Cuts Odds Ease on Positive UK Data

The Pound Euro (GBP/EUR) exchange rate edged higher this morning, with the pairing currently trading around €1.188 after the release of January’s flash Markit Services beat forecasts and rose from 50 to 52.9.

Chris Williamson, Chief Business Economist at IHS Markit, commented:

‘The survey data indicate an encouraging start to 2020 for the UK economy… Intensifying political and economic uncertainty ahead of the general election has started to ease, encouraging more spending and helping push business expectations of future growth to its highest since mid-2015.’

With an improving UK services sector this month, we could see the Bank of England’s interest rate decision on the 30th January take a more hawkish stance in its accompanying statement.

This follows a recent surge in odds of an interest rate cut after speculation over the health of the UK economic post-Brexit took a negative turn.

The GBP/EUR exchange rate has remained relatively stable, however, as UK markets are remaining jittery ahead of next week, when the UK is officially expected to leave the European Union on the 31st January.

EUR/GBP Exchange Rate Dips, German Markit Manufacturing PMI Remains in Contraction Territory

The Euro (EUR) failed to rise following this morning’s release of January’s flash German Markit manufacturing PMI, which remained mired in contraction territory.

However, the Euro held steady after the positive flash German PMI Composite report, which rose from 50.2 to 51.1, and restored some confidence in the Eurozone’s powerhouse economy.

Phil Smith, the Principal Economist at IHS Markit, was upbeat in his analysis, commenting:

‘A number of positive takeaways from January’s flash PMI survey suggest the storm clouds over the German economy may be starting to clear. The drag from the downturn in manufacturing continues to ease as the sector moves closer to stabilisation, while the services economy is back growing at a robust pace.’

Today’s data follows a generally upbeat tone from Christine Lagarde, the President of the European Central Bank (ECB), yesterday.

Mme Lagarde said that she found ‘some comfort’ from improved relations between the US and the EU, which indicated that there could be a possible US-EU trade deal on the horizon. She also commended the ‘tone and determination’ between US President Donald Trump and the European Commission Chief, Ursula Von der Leyen.

Any further signs of easing trade tensions between the bloc and the United States would be EUR-positive, as this would provide a boost for Germany’s global trade-reliant economy.

GBP/EUR Outlook: Could the Euro Rise on Positive German Business Sentiment?

Euro (EUR) investors will be looking ahead to Monday’s German IFO business sentiment report, with any signs of improvement likely to boost the EUR/GBP exchange rate as the Eurozone’s powerhouse economic outlook shows signs of improvement.

Sterling investors, meanwhile, will be awaiting next week’s Bank of England interest rate decision. Any further indications that the bank could be dovish in its forecast for the year would prove Pound-negative.

David Moore

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