Pound Euro (GBP/EUR) Exchange Rate Trades Sideways on Daily High

Pound Euro Exchange Levels as Sterling Upside is Sustained

(Updated 16:25, 23/06/2022) GBP/EUR continues trading sideways through the remainder of the afternoon as the Pound remains supported by upbeat services data.

Market sentiment is largely downbeat as growing evidence points to slowing economies in the UK, US and Eurozone. In the UK, rising inflation is firmly in the public eye and businesses are primed for a summer of industrial action as British railway workers continue to strike and airport staff at Heathrow vow to walk out.

Nevertheless, Sterling continues to enjoy tailwinds – derived, in part, from cross-driven strength as Eurozone PMIs unequivocally disappointed markets and EUR sank.

Looking ahead, analysts forecast that the Pound may come under some pressure: the gradual approach favoured by the Bank of England (BoE) represents policy divergence from other major central banks, which could dent GBP sentiment.

Moreover, the UK-EU impasse over the Northern Ireland Protocol threatens meaningful downside for Sterling in days to come. On the one hand, former Brexit minister David Frost remarks:

‘Brexit is working..’ and ‘we have no cause for regrets about the decision the country has taken’;

Meanwhile, the Resolution Foundation thinktank reports that Brexit is damaging the competitiveness of UK exports and making the cost of living crisis worse for households.

Original article continues below:

GBP/EUR Exchange Rate Climbs on UK PMI Optimism

(Updated 14:00, 23/06/2022) The Pound Euro exchange rate bounced off this morning’s low levels to revisit yesterday’s highs following a positive release for the UK. Service-sector activity in the UK remained unchanged in June, according to initial estimates, rather than dropping as expected.

Markets were not immediately responsive to the data, but Sterling gradually shed its losses against several peers as the day wore on. Between a weak manufacturing PMI and downbeat retail figures, the UK’s services report managed to disperse some of the gloom felt by GBP investors.

Subsequently, CBI data revealed that retail sales volumes fell in May and economists warned of chaos ahead as Pound trading is likely to be affected by travel sector disruptions. Airport staff at Heathrow are considering strike action as British Airways refuses to raise pay amidst a national cost-of-living crisis.

If strikes go ahead and additional price increases across fuel and food come into effect, GBP may well succumb to downside in the near future.

Original article continues below:

Pound Euro Exchange Rate Inches Higher Though Markets Remain Cautious

The Pound Euro (GBP/EUR) exchange rate has ticked up this morning as both manufacturing and services activity in Germany fell by more than expected in June. Meanwhile, Pound (GBP) gains are capped by rising debt costs in the UK.

At the time of writing, GBP/EUR is trading at €1.1620, up 0.2% from today’s opening levels.

Euro (EUR) Subdued by Weaker-Than-Expected PMI Data

The Euro (EUR) is trending lower this morning against the majority of its peers, succumbing to downside in the wake of Germany’s worse-than-expected PMI release.

Manufacturing in the bloc’s largest economy fell to 52 according to June’s flash data – from 54.8 last month – while service-sector activity reduced to 52.4. The former marked a 23-month low as higher backlogs of work failed to offset the sharpest decline in new orders in two years.

According to Phil Smith, Economics Associate Director at S&P Global, the data shows that Germany’s economy has lost virtually all the momentum gained from the easing of coronavirus-related restrictions, as growth in the service sector cools sharply for the second month in a row.

‘Thanks to a particularly grim outlook for the manufacturing sector, business confidence towards future activity is now at its lowest since the first wave of the pandemic two years ago,’ Smith added.

A similar trend can be seen in the broader Euro area PMI. Manufacturing likewise fell to 52 in June, as services activity hit 52.8.

Also weighing upon the single currency today is strength in the US Dollar (USD). Widespread risk aversion serves to boost the ‘Greenback’, which alternately pressures the Euro on account of the currencies’ strong negative trading correlation.

Pound (GBP) Sentiment Dampened as UK Finances ‘Off to a Bad Start’

The Pound is struggling to find support so far this morning, given downbeat data from the Office for National Statistics (ONS). The UK government borrowed more than expected to balance its books last month, with rising inflation pushing up the cost of servicing the national debt.

This month’s public finances marked the third-highest May borrowing on record – £4bn less than a year ago by £8.5bn more than in May 2019 before the Covid pandemic.

Responding to the data, Chancellor Rishi Sunak focused upon the impact of inflation:

‘Rising inflation and increasing debt interest costs pose a challenge for the public finances, as they do for family budgets.

That is why we are taking a balanced approach – using our fiscal firepower to provide targeted help with the cost of living, while remaining on track to get debt down.’

The focus on inflation is likely to contribute towards bearish GBP trading sentiment today, while mixed PMI data may also cap Sterling gains.

UK manufacturing activity fell to 53.4 in June according to initial estimates – marginally below forecasts but still above the 50 market that denotes expansion rather than contraction. Meanwhile, service-sector activity printed higher than expectations, matching last month’s reading of 53.4.

Pound Euro Exchange Rate Forecast: Sterling to Enjoy PMI Upside?

Looking ahead, the UK’s services PMI may help to limit the Pound’s losses, potentially even buoying the currency against EUR. Knee-jerk positivity amongst GBP traders could sustain Sterling upside for a short while.

Today’s distributive trades report from the Confederation of British Industry may later sap Pound gains, however, if it records a decline in retail sales in June. Elsewhere, risk-off sentiment may dent GBP prospects, favouring the Euro in the Pound to Euro exchange rate.

Olivia Evershed

Contact Olivia Evershed


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