Pound Euro Exchange Rate Weakens on Eurozone Manufacturing PMI

The Pound Euro (GBP/EUR) exchange rate has weakened since markets opened this morning as German retail sales recovered during May as much of the economy reopened from coronavirus restrictions.

At the time of writing the GBP/EUR pairing are trending around the 1.1622 level as markets await the latest manufacturing PMI from the UK.

Pound (GBP) Boosted by BoE Inflation Predictions

The Pound has edged higher this morning following on from comments from departing chief economist at the Bank of England (BoE) Andy Haldane over rising inflation.

Haldane stated that he believed that inflation in the UK would hit 4% towards the end of the year as the UK economy recovers from coronavirus.

Speaking yesterday Haldane said:

‘Overall, inflation expectations and monetary policy credibility feel more fragile at present than at any time since inflation-targeting was introduced in 1992. By the end of this year, I expect UK inflation to be nearer 4% than 3%.’

Pound investors await the latest manufacturing PMI from the UK for June which is forecast to have softened to 64.2.

A speech from BoE Governor Bailey this morning was more hawkish surrounding the UK’s current economic state, Bailey said:

‘The good news is that the economy is only around 5% smaller than it was eighteen months ago – and in view of what we have experienced, that is good news – and the gap is closing quite rapidly. But let’s pause for a moment on the good news that the economy is only 5% smaller. In any conventional time, even in the depths of a recession, that would scarcely qualify as good news.’

Euro (EUR) Firms as Eurozone Manufacturing PMI Rises More-Than-Expected

The Euro has been mixed since markets opened this morning following a recovery in German retail sales during May.

Germany, the Eurozone’s largest economy saw retail sales rise 4.2% month-on-month following a -6.8% contraction during April, as much of Germany eased out of coronavirus lockdown restrictions.

Whilst slightly missing forecasts of 5%, the figures have given a clear indication into the German economic recovery which looks to be driven by consumer-spending over the summer.

The Eurozone manufacturing PMI hit new heights during June, expanding for the fourth successive month and beating flash forecasts rising to 63.4.

Chris Williamson, Chief Business Economist at HIS Markit commented on the latest PMI, saying:

‘Eurozone manufacturing continued to grow at a rate unbeaten in almost 24 years of survey history in June as demand surged with the further relaxation of COVID-19 containment measures and vaccination progress drove renewed optimism about the future.’

Pound Euro Exchange Rate Outlook: Coronavirus Developments in Focus

A lack of notable data from both the UK and Eurozone tomorrow could see the GBP/EUR limited in its movement, and open to losses heading into the weekend.

Any further coronavirus developments surrounding the delta variant of the virus is expected to be the main driver of movement in the Pound Euro pairing as cases continue to surge across the globe.

More so, the continuing strength of the US Dollar could see the Euro stumble further is US non-farm payroll figures meet forecasts tomorrow.

Heading into next week the latest Markit PMI data from the UK and Eurozone will be the main catalyst for movement in the GBP/EUR exchange rates.

Georgina Clissold

Contact Georgina Clissold