GBP/EUR Exchange Rate Sinks as UK Economic Outlook Darkens
The Pound to Euro (GBP/EUR) exchange rate fell by -0.2% today, with the pairing currently fluctuating around €1.11. The Euro (EUR) has traded higher ahead of today’s European Central Bank’s interest rate decision due later this morning.
Sterling suffered today following the release of the final UK construction PMI figure for May, which fell below forecasts at 28.9. However, this showed a marked improvement from April’s 8.2, but nevertheless remained deeply lodged in contraction territory.
Duncan Brock, the Group Director at the Chartered Institute of Procurement and Supply, commented:
‘The construction sector suffered one of its worst results in May since the PMI surveys began as building work was grounded by the pandemic and lockdown measures.’
‘Spending was slashed as clients continued to stonewall building firms and put new projects on hold. With furloughed staff across the supply chain, companies saw their capacity leak away and the construction sector now faces the most challenging environment for generations.’
Meanwhile, UK car sales also slumped by 90% in May, with 2,000 works set to lose their jobs amid the Covid-19 crisis.
As a result, Sterling traders have remained cautious as Britain’s economy continues to suffer from the coronavirus pandemic.
Euro (EUR) Rises Ahead of ECB Rate Decision and PEPP Announcement
The Euro (EUR) rose ahead of today’s European Central Bank’s interest rate decision. Interest rates are expected to be held at 0%.
However, single currency traders are feeling increasingly optimistic that the ECB will sharply increase its Pandemic Emergency Purchase Programme (PEPP). Will the ECB confirm forecasts and announce a €500 billion increase to PEPP?
Florian Hense, from Berenberg Economics, commented:
‘We see a 60% probability that the ECB will raise its asset purchase target on Thursday, probably by 500 billion Euros. Gloomy staff projections for growth and inflation will make it easy to justify such as decision.’
Meanwhile, Euro traders will be awaiting further details from President of the ECB Christine Lagarde. Any signs of resolution over German Constitutional Court’s ruling of the legality of the ECB’s asset purchasing would prove EUR-positive.
Nevertheless, we could see the Euro (EUR) suffer today if the ECB is notably dovish about the Eurozone’s economic health going forward.
Pound to Euro Outlook: German Factory Orders in Focus
Euro (EUR) investors will be looking ahead to tomorrow’s release of the German factory orders figures for April. However, if these confirm forecasts and sink from -15.6% to -19.7%, we could see the EUR/GBP exchange rate fall.
Sterling traders will be looking out for tomorrows’ release of the UK Halifax house prices report for May. Any signs of a downturn in the British economy would further darken the nation’s economic outlook.
The GBP/EUR exchange rate will remain sensitive to the UK’s coronavirus developments this week. However, any signs of the UK’s economic recovery falling behind would continue to drag down Sterling.