Pound Euro Exchange Rate Continues to Fluctuate on Absence of Data
The Pound Euro (GBP/USD) exchange rate continues to trade sideways this afternoon as a lack of significant data limits movement in either direction.
While Sterling continues to benefit from descending coronavirus figures, the Euro has made small gains on dovish messaging from the Federal Reserve.
In addition to positive data of its own, poor US Dollar sentiment also lends the single currency headwinds as a result of its strong negative correlation with USD. A lower-than-expected ISM manufacturing PMI hasn’t helped ‘Greenback’, which has fallen in most of its currency pairings.
Off the back of this morning’s Euro area PMI, IHS Markit observes that the Eurozone manufacturing sector has now recorded successive months of expansion since July 2020; ‘a pretty extraordinary outcome if you consider how bad the outlook seemed then.’
(Updated 17:04, 02/8/21)
Original article continues below:
Pound Euro Exchange Rate Wavers as Eurozone Data Exceeds Forecasts
The Pound Euro (GBP/EUR) exchange rate is fluctuating this morning as data from Germany and the Euro area print higher than expected. The single currency is benefitting today from a general risk-on mood.
At the time of writing, the Pound (GBP) trades at €1.1713, virtually unchanged from the today’s opening levels.
Euro (EUR) Buoyed by Positive German and Euro Area Data
Euro (EUR) investors were pleasantly surprised this morning as an early data release out of Germany revealed that retail sales in July exceeded forecasts, printing at 4.2% as opposed to 2%.
While a marginal contraction on last month’s 4.6% expansion, this release is good news for traders backing the single currency, as it reveals the positive impact of societal reopening and lowering coronavirus cases across Germany.
Sales data was swiftly followed by Germany’s manufacturing PMI, followed by that of the Euro area. Both exceeded expectations, lending further support to EUR.
Germany’s 65.9 figure in particular demonstrated the third-strongest growth rate ever recorded, while in the Euro area, new export orders continued to expand at a sharp pace. In addition, employment levels rose the most since data collection began 24 years ago.
Today’s data helps the Euro to maintain last week’s positive sentiment as stronger-than-expected Eurozone GDP and inflation data were released on Friday.
Growth in the Eurozone is expected to continue in the third quarter, although there is the lingering risk of the Delta variant.
Economists at MUFG Bank are bearish, however, suggesting the positive data is unlikely to result in a shift in policy from the European Central Bank (ECB):
‘Evidence of stronger economic recovery should encourage the ECB to discuss [phasing] out emergency support measures in the autumn. However, the ECB’s new dovish policy guidance has signalled strongly that they will maintain looser policy for longer. The net result is that the ECB’s dovish policy stance will dampen support [despite] evidence of stronger growth and inflation in the Eurozone.’
Pound (GBP) Competes with Euro as Risk-On Mood Elevates Both
The Pound (GBP) is rivalling the Euro this morning as investors take heart from the UK’s drop in Covid cases.
Following a sudden surge last week of 4,000 cases in one day, cases have dropped once more, with 24,470 confirmed cases between Saturday and Sunday as opposed to 29,173 the same time a week earlier.
As analysts at OCBC bank warn, however, ‘pandemic-related positives are flimsy and prone to re-emerging cases.’ As UK data remains sparse ahead of the Bank of England (BoE)’s meeting on Thursday, the Pound is liable to slip against the Euro – although a persistent risk-on mood may support Sterling against some of its peers.
The UK’s manufacturing PMI has printed as expected and is unlikely to have much effect on the markets as last week’s Flash release will already have been factored in; the same will go for Wednesday’s services PMI, unless figures deviate drastically from predictions.
Pound Euro Exchange Rate Forecast: Dovish BoE to Dent Sterling Prospects?
While the Eurozone benefits from consistently higher-than-expected data releases, investors caution that the Pound’s current streak may be short-lived.
Sentiment surrounding the coronavirus may provide some direction, but the UK’s downwards trajectory in case numbers cannot be guaranteed to continue, after last week’s sudden spike.
Regarding the BoE meeting, analysts at ING ‘don’t expect any new guidance on the interest rate path and look for the repeat of prior language that ‘significant progress’ is needed before stimulus is removed’; an eventuality that, if proven correct, could dent the Pound in its lack of hawkish sentiment.
Meanwhile, Euro area PPIs look set to demonstrate growth alongside retail sales, lending further support to the single currency and perhaps lifting the EUR/GBP exchange rate just that bit higher.