Pound Euro (GBP/EUR) Exchange Rate Lifted from 8-Week Low as UK PMIs Better Forecasts

Stronger UK PMI Performance Offers Boost to Pound Sterling Euro (GBP/EUR) Exchange Rate

A stronger-than-expected performance from May’s UK manufacturing and services PMIs helped to drive the Pound Sterling to Euro (GBP/EUR) exchange rate higher.

While both sectors remained in a state of contraction this month investors still took encouragement from signs that the extent of the decline has started to ease.

Even so, the potential for Pound Sterling (GBP) gains proved limited at this stage as the UK economy remains on course for a sharp second quarter slowdown.

May’s CBI industrial trends orders index also dented the GBP/EUR exchange rate’s uptrend as it fell even deeper into negative territory.

Until the economy can demonstrate greater signs of recovery from the impact of the Covid-19 lockdown GBP exchange rates may struggle to gain any significant ground.

Euro Benefits as Eurozone Services PMI Rebounds from Record Low

The Eurozone economy showed similar signs of tentative improvement in May, with the services PMI rebounding from the unprecedented low seen in April.

Although the currency union still looks set to experience a major contraction in the second quarter, pushing it into a state of technical recession, the Euro (EUR) still found support today.

Hopes that the economic slowdown is already starting to bottom out helped to keep the single currency from trending lower across the board.

With the Federal Reserve signalling its intention to keep interest rates lower for longer EUR exchange rates were able to hold onto a generally positive footing.

ECB Meeting Minutes Forecast to Fuel Euro Volatility

The release of the European Central Bank’s (ECB) most recent set of meeting minutes may put further pressure on the single currency on Friday.

Evidence of increased dovishness among policymakers could see the Euro fall out of favour with investors as the prospect of further monetary loosening remains on the table.

On the other hand, signs that the ECB is adopting a more optimistic outlook on the Eurozone economy in the latter half of the year may dent the GBP/EUR exchange rate.

As long as the central bank reaffirms its commitment to supporting the currency union, though, the Euro looks vulnerable to a fresh bout of volatility.

GBP Exchange Rates Set to Trend Lower on Plunge in UK Retail Sales

Confidence in the underlying health of the UK economy could weaken further ahead of the weekend, meanwhile, if April’s retail sales data fails to impress.

As forecasts point towards a dramatic -22.2% decline in sales on the year fears of a sharper slowdown in economic activity look set to grow.

Given that higher levels of consumer spending have previously helped to shore up the UK economy a major decline here could fuel fears of a deeper impending recession.

Unless consumers show signs of shrugging off the impact of the Covid-19 crisis the GBP/EUR exchange rate looks set to come under pressure tomorrow.

Growing doubts over the likelihood of a v-shaped recovery could also drag on demand for the Pound in the days ahead.

Louisa Heath

Contact Louisa Heath