Pound Euro (GBP/EUR) Exchange Rate Rebounds Above €1.15

GBP/EUR Exchange Rate Firms on Upgraded UK Growth Forecast

(Updated 15:30 23/5/2022) The Pound Euro (GBP/EUR) exchange rate is trading with modest gains this afternoon. The pairing having recouped its losses from the start of the European session.

The rebound in GBP/EUR appears in part linked to the IMF’s upgraded growth forecasts for the UK, which is now expected to dodge a recession in 2023. Although dovish comments from Bank of England (BoE) Governor Andrew Bailey have tempered the Pound’s recovery.

Meanwhile the Euro is facing headwinds due to the single currency’s negative correlation with the US Dollar (USD).

Original article continues below:

Pound Euro Exchange Rate Knocked by Lacklustre UK PMIs

The Pound Euro (GBP/EUR) exchange rate has fallen this morning, pressured by underwhelming UK PMIs.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1474. Down roughly 0.2% from this morning’s opening rate.

Pound (GBP) Retreats on Underwhelming PMIs

The Pound (GBP) is on the back foot this morning, following the publication of the UK’s latest PMI figures.

May’s preliminary figures reported growth in the UK’s manufacturing and services sector both fell short of expectations.

The manufacturing PMI printed at 46.9 versus the 48 forecast. While the vital services PMI fell from 55.9 to 55.1. Missing forecasts it would only fall to 55.5.

Sterling faltered as the PMIs highlighted how subdued consumer demand is dragging on the UK economy.

Dr John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, comments:

‘Activity growth in private sector business softened last month to the lowest since March as subdued customer demand put a dampener on levels of new orders. Uncertainty returned as businesses were worried about higher interest rates impacting on business investment and consumers about their household bills.

‘Regardless of the swings and roundabouts shown in the data, neither sector was particularly cheery about the next 12 months.’

Euro (EUR) Supported by Stronger-than-Expected Services PMI

The Euro (EUR) in contrast is supported this morning by the Eurozone’s own PMI figures.

The services PMI printed at 55.9 this month. While this was down from a 12-month high of 56.2 in April, it beat forecasts for a larger drop to 55.6.

Signs that inflation pressures in the services sector are rising were of particular note to EUR investors as this bolstered European Central Bank (ECB) interest rate expectations.

Dr Cyrus del la Rubia, Chief Economists at Hamburg, said:

‘The ECB will have a headache with the PMI price data. This is because selling prices in the services sector actually rose more than in the previous month. It is precisely prices developments in this sector that the ECB is watching with wary eye.’

Pound Euro Exchange Rate Forecast: UK Inflation in the Spotlight

The spotlight will be on the UK’s consumer price index tomorrow, with the release potentially injecting significant volatility into the Pound Euro (GBP/EUR) exchange rate.

UK inflation is expected to have fallen sharply in April. Consensus forecasts predict headline inflation will have nosedived from 10.1% to 8.2%. This dramatic deceleration may pull the Pound sharply lower.

On the other hand, underlying inflation is forecast to have held at 6.2%. Could this keep Bank of England (BoE) rate hike bets alive and underpin Sterling?

Meanwhile, the focus for EUR investors will be Germany’s latest IFO business climate index. May’s figures could weaken the Euro as an expected deterioration in sentiment may add to worries over the Eurozone’s largest economy.

Matthew Andrews

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