Pound Euro Exchange Rate Extends Losses even as UK Services PMI Rebounds

GBP/EUR – Pound Pressured by UK-EU Vaccine Row and Soaring Debt

A better-than-expected uptick in the Gfk consumer confidence index was not enough to shore up the Pound ahead of last weekend.

Focus instead fell on the sharp increase in government debt shown by February’s public sector net borrowing figure, pointing towards the ongoing impact of the Covid-19 crisis.

Growing tensions between the UK and EU over the supply of Covid-19 vaccines also weighed heavily on demand for the Pound, casting doubt over the UK’s lockdown easing roadmap and the economic outlook.

However, confidence in the underlying performance of the economy could improve on the back of an uptick in March’s CBI distributive trades index, which could indicate modestly improving retail sales and confidence.

GBP/USD – Surge in UK Services PMI Fails to Prompt Pound Jump

While the UK services PMI staged a major recovery in March, this failed to offer GBP exchange rates any particular boost.

Instead an unexpected slowing of UK inflation at 0.4% in February weighed on GBP exchange rates, while investors remain wary of the possibility of the economy experiencing a fresh contraction in the first quarter of the year.

Even so, the mood towards the Pound could improve on Friday if the latest UK retail sales data shows an improvement in consumer confidence.

A sharp bounce back in retail sales would suggest that consumers largely shrugged off the impact of the ongoing national lockdown in February, limiting the risk of a deeper economic slowdown.

USD/GBP – US Dollar Benefits from Growing Global Market Anxiety

Although the Federal Reserve maintained a relatively dovish outlook at its March policy meeting, the US Dollar failed to come under much pressure.

The safe-haven US Dollar benefitted as market risk appetite diminished in the face of growing anxiety over the global growth outlook, US-China tensions, and a third coronavirus wave in Europe.

The release of the latest durable goods orders could provoke volatility in USD exchange rates, as February’s reading came in worse than expected, indicating a decline of -1.1% instead of the 0.8% modest growth forecast.

However, a week of improvement in the number of initial jobless claims tomorrow could add upside support to USD exchange rates on Thursday.

EUR/USD – Rising Eurozone Covid-19 Cases Limit Euro Appeal

An unexpectedly sharp narrowing of the Eurozone trade surplus limited the appeal of the single currency last week, especially as fresh lockdown conditions loomed.

With Covid-19 infections on the rise in the currency union, investors saw little reason to favour the Euro over the other majors.

The extended decline of the service sector also weighed on EUR exchange rates, with the risk of a first quarter economic contraction still on the table.

Nevertheless, if March’s Germany IFO business sentiment surveys point towards a greater degree of confidence within the Eurozone’s powerhouse economy, this could shore up the Euro once again.

Louisa Heath

Contact Louisa Heath


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