Pound Euro (GBP/EUR) Exchange Rate Falls Ahead of Thursday’s ECB Meeting

Pound Sterling Euro (GBP/EUR) Exchange Rate Slides as Traders Optimistic About ECB Meeting

The Pound Sterling Euro (GBP/EUR) exchange rate edged around -0.2% lower this morning. This left the pairing trading at around €1.1219.

The single currency was able to benefit today, rising to the highest level in close to three months. Increased hopes for further action from the central bank boosted the Euro.

EUR was buoyed on hopes European Central Bank (ECB) policymakers would provide further support for the bloc’s weakest economies.

The ECB is expected to increase its €750 billion bond-buying programme when the bank meets tomorrow.

Meanwhile, PMI data from the Eurozone showed the bloc’s PMI composite rose in May. However, the index remains firmly in contraction.

Coronavirus Leaves Eurozone PMI in Contraction

Markit reported the bloc’s PMI composite rose from April’s 13.6 to 31.9. The coronavirus pandemic continued to have a severe impact on economic performance.

Commenting on this morning’s data, Markit’s Chief Business Economist, Chris Williamson noted:

‘The scale and breadth of the Eurozone downturn was highlighted by the PMI data showing all countries enduring another month of sharply falling business activity. Eurozone GDP is consequently set to fall at an unprecedented rate in the second quarter, accompanied by the largest rise in unemployment seen in the history of the Euro area.

‘Providing there is no resurgence of infection numbers, the planned lifting of lockdowns will inevitably help boost business activity and sentiment further in coming months.

‘However, the outlook is scarred by the prospect of demand remaining weak due to household spending being hit by high levels of unemployment and corporate spending being subdued as companies repair balance sheets.

‘We therefore remain cautious with respect to the recovery. Our forecasters expect GDP to slump by almost 9% in 2020 and for a recovery to pre-pandemic levels of output to take several years.’

Sterling (GBP) Slumps as ‘Hoped-For Bounceback’ Fails to Materialise

The Pound fell as May’s PMI data revealed the downturn in the service sector continued.

While the severe downturn continued due to the coronavirus, the pace of decline eased last month compared to May.

Markit’s survey showed new work plummeted and employment remained on a steep downward trajectory. However, business expectations continued to edge higher after March’s record low.

May’s services PMI rose from April’s 13.4 to 29, as the sector remained firmly in contraction territory. Added to this, Britain’s PMI composite picked up, rising from April’s record low 13.8 to 30.

Commenting on the latest PMI data, Group Director at the Chartered Institute of Procurement and Supply, Duncan Brock noted:

‘May’s survey data painted a deeply concerning picture of a lockdown slowdown across the service sector as employment dropped at the second fastest rate on record, pipelines of new work were woefully empty and business confidence continued to suffer.

‘As the pandemic progressed any hoped-for bounceback in business output never really got going in May following the previous month’s awful results, though a modicum of recovery will offer small respite in some sectors. Pockets of trading began again as firms began adapting to social distancing measures, though only 15% of companies reported a rise in new orders this month.’

Pound Euro Outlook: ECB in Focus This Week

Looking ahead to Thursday, the Euro (EUR) could rise against the Pound (GBP) ahead of the European Central Bank (ECB) monetary policy meeting.

The single currency could rise if the ECB announces further support for the economies in the bloc hardest-hit by the coronavirus crisis.

Meanwhile, the main driver for Sterling over the rest of the week is likely to be this week’s UK-EU trade talks.

If reports suggest post-Brexit trade negotiations come to another standstill over key issues, the Pound Euro (GBP/EUR) exchange rate will slump.

Millie Empson

Contact Millie Empson