Pound Euro (GBP/EUR) Exchange Rate Volatile on Mixed US Data
(Updated 15:30, 4/8/21) The Pound Euro (GBP/EUR) exchange rate has experienced some volatility this afternoon after the latest US data surprised investors.
First came the ADP employment change, which fell far short of expectations. According to the survey, 330,000 new jobs were created in July – less than half the forecast 695,000. The big miss has some analysts wondering whether this may cause the Federal Reserve to further hesitate in its tapering of bond purchases.
The subsequent slump in the US Dollar (USD) saw the Euro (EUR) spike, thanks to the currencies’ positive correlation; as a result, GBP/EUR fell by 0.3% from €1.175 to €1.172.
Then came the ISM services PMI from the US. This time, the data smashed expectations and hit a record high. The US Dollar rallied, the Euro dropped, and the Pound Euro pair bounced back to the €1.174 range, where it is currently trading.
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Pound Euro (GBP/EUR) Exchange Rate Firms as UK Covid Hospitalisations Fall
The Pound Euro (GBP/EUR) exchange rate continues to strengthen today, as UK Covid cases and hospitalisations are falling.
The Pound Euro pair has also been supported by the finalised services PMIs, with the UK’s revised higher and the Eurozone’s revised lower.
Pound (GBP) Gains as UK Reaches Covid ‘Equilibrium’
The Pound (GBP) is on the rise today, boosted by Covid hopes and better-than-expected service-sector activity.
The main driver behind Sterling’s upside today seems to be the country’s uplifting Covid data. Confirmed cases have been falling since the 19 July reopening, with weekly cases down by 20.5%. In addition, hospitalisation figures have also started to decline.
The data is very encouraging, with many experts now believing it is unlikely we’ll see another spike in cases caused by the easing of restrictions last month.
Professor Paul Hunter of the University of East Anglia says that we have reached an ‘equilibrium’, by which he means a situation in which cases fluctuate without huge surges or the need for restrictions to bring cases down.
GBP investors are hopeful that the positive outlook on the UK’s pandemic progress will translate to a stronger UK economy, with fewer restrictions and greater confidence enabling more economic activity.
Also supporting Sterling is the UK’s final services PMI, which was revised upwards to 59.6, above the preliminary estimate of 57.8. While the latest reading points to a slowdown in service-sector activity, the above-predicted results seem to have added to the Pound’s upside.
Euro (EUR) Dips on Disappointing Data
The Euro (EUR), meanwhile, started today’s session on the back foot after the services PMIs in Germany and the Eurozone missed expectations.
Despite both PMIs revealing an increasing pace of service-sector expansion, the below-expected results seem to have dented the Euro.
The Eurozone’s latest month-on-month retail sales report also missed expectations, coming in at 1.5% rather than the 1.7% predicted. However, the downward pressure of this disappointing figure may be offset by the year-on-year growth, which beat forecasts of 4.5% to hit 5%.
The single currency also faces a third headwind after some dovish comments from Martin Kazaks, a Governing Council member of the European Central Bank (ECB).
In an interview this morning, Kazaks said that it would be ‘premature’ for the central bank to decide on the future of the pandemic emergency purchase programme (PEPP) in September’s meeting, citing coronavirus uncertainty and the threat of new restrictions. The comments will have disappointed EUR investors hoping for clarity on the ECB’s tapering plans.
Pound Euro Exchange Rate Forecast: US Data to Dent the Euro?
With no more data due out of the UK or the Eurozone today, and the UK’s Covid outlook remaining upbeat, the Pound Euro exchange rate could hold its gains today.
That said, the Eurozone reports this morning were broadly positive, while the UK’s PMI raises concerns over the ‘pingdemic’ and inflation. Once markets have recovered from the initial shock of the unexpected results, the Euro could potentially regain some lost ground.
Data from the US this afternoon could favour the Pound Euro pair, as the positive predictions may boost the US Dollar (USD), thereby weakening the Euro due to the negative correlation between USD and EUR.