Pound Euro (GBP/EUR) Exchange Rate Rocky despite Above Forecast PMIs

(Updated 16:45 23/11/21)

The Pound Euro (GBP/EUR) exchange rate has stabilised following its dip this morning and has traded in a narrow range throughout the rest of the day.

At time of writing the GBP/EUR exchange rate is at around €1.1874, which is down -0.36% from this morning’s figures.

Pound Euro (GBP/EUR) Exchange Rate Unsteady Following Eurozone PMI Figures

The Pound Euro (GBP/EUR) exchange rate dipped at the opening of today’s session, as above forecast PMIs for the Eurozone provided a boost to the Euro.

At time of writing the GBP/EUR exchange rate is at around €1.1877, which is down -0.34% from this morning’s opening figures.

Euro (EUR) Boosted by Eurozone PMIs

The Euro (EUR) rose against its competitors this morning, as the Eurozone reported an unexpected improvement in private sector activity. The news comes amid an ongoing rise in COVID-19 cases across the continent.

The Eurozone’s factory sector reported a strong uptick in growth this month, with the latest manufacturing index climbing from 58.3 to 58.6, beating forecasts it would slip to 57.3.

Services sector activity also beat expectations, with the preliminary services index printing at 56.6 versus forecasts of 53.5, despite businesses reporting they were forced to raise their prices to a record degree in the past month due to supply chain issues, rising energy prices, and other inflationary pressures.

It’s likely that market reaction to this data will drive fresh movement in EUR today, although speculative bets are likely to be less aggressive given that the European Central Bank has made it clear numerous times that an interest rate hike is unlikely to happen before 2022.

Headwinds for the Euro could also temper this optimism, as rising COVID-19 cases and potential lockdowns across the continent continue to place pressure on the currency.

Chris Williamson of IHS Markit warned against too much optimism following the day’s figures:

‘A stronger expansion of business activity in November defied economists’ expectations of a slowdown, but is unlikely to prevent the Eurozone from suffering slower growth in the fourth quarter, especially as rising virus cases look set to cause renewed disruptions to the economy in December.’

Pound (GBP) Subdued despite PMI Growth

The Pound has traded within a narrow range this morning despite above forecast PMI data for the UK’s private sectors.

The country’s manufacturing index rose above forecasts in November to 58.2, whilst services also saw a slight boost, with its index dropping to 58.6 versus the expected 58.5, although respondents in both sector highlighted concerns over surging prices due to raw material shortages and supply chain issues.

These increasing inflationary pressures have led analysts to predict an interest rate rise by the Bank of England (BoE) as soon as December. Speculation on an early interest rate rise could drive fresh movement in Sterling today, although investors are likely to be more cautious after the BoE’s surprise decision to keep rates unchanged last month.

Chris Williamson, chief business economist at IHS Markit, had the following to say on the possibility:

‘A combination of sustained buoyant business growth, further job market gains and record inflationary pressures gives a green light for interest rates to rise in December.’

The Pound could face further headwinds today, as disputes over fishing rights between the UK and France continue to rumble on. The UK has also been urged to ‘come to its senses’ over the Northern Ireland Protocol by Germany today, as the EU continues to hope for productive negotiations. 

GBP/EUR Exchange Rate Forecast: Could COVID Cases Harm Europe’s Recovery?

The week ahead will bring significant data for the Eurozone’s largest economy, as Germany will see reports on both business and consumer confidence.

Wednesday brings the Ifo’s business climate report for Germany which is currently forecast to fall slightly to 96.6. Thursday will see the latest figures for the country’s consumer confidence index which is expected to fall drastically from 0.9 to -0.5. These figures could well drive fresh movement in EUR should they print as expected.

After today’s PMIs, the UK will see no further significant data releases for the rest of the week. BoE Governor Andrew Bailey is due to give a speech on Thursday, which may drive fresh movement in Sterling should investors pick up on any hints as to the central bank’s future monetary policy.

Gareth Monk

Contact Gareth Monk