Pound Euro (GBP/EUR) Exchange Rate Wavers Lower despite Strong PMI
(Updated 15:30, 24/3/22) The Pound Euro (GBP/EUR) exchange rate fluctuated lower today amid choppy trading conditions.
Sterling found some support from the UK’s latest services PMI, which unexpectedly improved. However, the PMI contained some caveats. Business optimism is at a 17-month low and the risk of stagflation is rising.
Chris Williamson, Chief Business Economist at S&P Global, commented:
‘The survey indicators point to potentially sharply slower growth in the coming months, accompanied by a further acceleration of inflation and a worsening cost of living crisis, which paints an unwelcome picture of ‘stagflation’ for the economy in the months ahead.’
The news follows yesterday’s CPI and the Chancellor’s spring statement, with fears around the UK’s cost-of-living crisis and economic outlook hammering the Pound (GBP).
Meanwhile, a mixed mood in European markets has caused the Euro (EUR) to waver. Hopes of a peace agreement in Ukraine have all but faded as Russia presses on with its invasion. However, expectations that the US and EU will announce shipments of liquefied natural gas (LNG) to Europe have cheered investors.
Europe’s reliance on Russian energy has worried EUR traders in recent months, so this news was well received.
At the time of writing, GBP/EUR is trading at €1.987, having wavered lower from €1.202.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Continues to Decline amid Flash PMIs
The Pound Euro (GBP/EUR) exchange rate slipped this morning as worries over the UK’s economic outlook continue to weigh on the Pound (GBP). Meanwhile, better-than-expected Eurozone PMIs boosted the Euro (EUR).
Since then, however, the UK’s services PMI has also beaten forecasts. Could this help GBP/EUR recover?
Pound (GBP) Falls as Cost-of-Living Fears Continue
The Pound initially dipped against the Euro this morning as markets and economists continue to digest yesterday’s economic news.
After UK inflation exceeded expectations to jump to a fresh 30-year high of 6.2%, Chancellor Rishi Sunak unveiled his spring statement alongside the Office for Budget Responsibility’s (OBR) economic outlook.
The releases show that the UK’s cost-of-living crisis is set to worsen. GBP/EUR fell in repsonse.
Sterling’s downside continued this morning as analyses and commentary keep rolling in.
The Resolution Foundation think tank has said that Sunak’s ‘big but poorly targeted policy package’ will see 1.3 million people fall into absolute poverty next year. This would be the first time such a rise in poverty has happened outside of a recession, Resolution says.
However, at the time of writing, the UK’s PMI results have just come in. Although UK manufacturing activity slowed by more than expected, service-sector activity unexpectedly accelerated. The services PMI inched up from 60.5 to 61, beating forecasts of a drop to 58.
This could support Sterling, thereby limiting its losses.
Euro (EUR) Rises as PMIs Beat Forecasts
Meanwhile, the Euro has managed to firm so far today, despite the fact that Russia-Ukraine tensions continue to rise.
Western countries are slapping more sanctions on Russian oligarchs, businesses and banks as Moscow steps up the brutality of its military tactics. This dented EUR yesterday, but the currency is rising this morning.
One supporting factor may have been better-than-expected PMI results. Although both manufacturing and service-sector activity in the Eurozone slowed, both PMIs printed above market forecasts.
Pound Euro Exchange Rate Forecast: Can Sterling Recoup Its Losses?
We could see Sterling recoup some losses today off the back of the UK’s strong services PMI. GBP/EUR could even conceivably rally, despite the cost-of-living headwinds, if worrying news from Ukraine rattles EUR investors.
However, if developments in the Russia-Ukraine war remain relatively slow, or if things improve, the single currency could retain the upper hand.
US data in the afternoon could also impact the Pound Euro pair. As the Euro is negatively correlated with the US Dollar (USD), any movement in USD could affect EUR.