Pound Euro (GBP/EUR) Exchange Rate Rebounds following Poor Eurozone Data
(Updated 16:45, 05/07/23) The Pound Euro (GBP/EUR) exchange rate managed to recover this afternoon, rallying to a 12-day high, as downbeat Eurozone data eventually weighed on the single currency.
Earlier this morning, the Eurozone’s final services PMI printed lower than preliminary estimates. Service sector activity in the bloc slowed from 55.1 to 52, below forecasts of 52.4.
Meanwhile, the UK services PMI fared much better, although it still revealed a slowdown. The survey score dropped from 55.2 to 53.7, in line with flash estimates.
Furthermore, the Eurozone’s latest producer price inflation data showed a larger-than-forecast decline in May. Month on month, PPI printed at -1.9%. This dampened expectations for more European Central Bank (ECB) interest rate rises, thereby denting the Euro (EUR).
This was in sharp opposition to Bank of England (BoE) rate rise bets. Some analysts are forecasting another bumper 50bps rate hike at the BoE’s August meeting. These hawkish expectations supported the Pound (GBP), although fears of rising rates leading to a UK recession seemed to cap gains.
At the time of writing, GBP/EUR is trading at around €1.1698, it’s highest level in 12 days, having recovered from an earlier fall.
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Pound Euro (GBP/EUR) Exchange Rate Softens as Risk Appetite Fades
The Pound Euro (GBP/EUR) exchange rate retreated from a nine-day high this morning as profit-taking and a risk-off mood weighed on the pairing. However, downbeat Eurozone data is limiting GBP/EUR’s losses.
At the time of writing, GBP/EUR is trading at around €1.1674, having slipped from an earlier nine-day high of €1.1688.
Pound (GBP) Pressured as Anxiety Returns to Markets
The Pound (GBP) stumbled at the start of today’s session, with some investors cashing in on the UK currency after GBP/EUR hit a nine-day high overnight.
A souring market mood also weighed on the increasingly risk-sensitive Pound. Yesterday, Sterling strengthened amid a bullish run in markets, but today’s bearish turn has seen GBP relinquish those gains.
Weaker-than-expected Chinese data overnight has seen global growth fears resurface, while investors also seem anxious ahead of the Federal Open Market Committee (FOMC) meeting minutes due out this evening.
Analysts are worried that higher borrowing costs – particularly from US interest rates – are stifling economic growth around the world.
Meanwhile, the UK’s final services PMI yielded no surprises. The score printed in line with preliminary expectations showing that activity slowed but remained in expansionary territory.
Euro (EUR) Capped by Worrying PMI Data
Turning to the Euro (EUR), it’s finding modest gains against Sterling as the souring market mood favours the safer single currency.
However, disappointing data caused some volatility in EUR and is limiting its upside potential. The Eurozone’s final services PMI was revised lower to reveal a sharper-than-expected slowdown in service sector activity last month.
The disappointing figures come after the manufacturing PMI suffered a similar fate earlier in the week, printing below preliminary estimates to show that Eurozone factory activity contracted at its fastest pace in over three years.
These downwardly revised scores mean that the composite PMI – which collates both surveys’ scores – printed at 49.9, rather than 50.3. A score below 50 represents contracting activity.
While this worrying result is not pushing the Euro lower against the Pound, it is certainly dampening EUR’s appeal.
Pound Euro Exchange Rate Forecast: Eurozone PPI to Dent EUR?
Looking ahead, the Eurozone’s producer price inflation figure for May could dent the single currency later this morning. Forecasters expect to see another sharp contraction in producer prices, which may reinforce expectations that inflation in the bloc is cooling.
This, in turn, could dampen European Central Bank (ECB) interest rate rise bets, thereby weighing on the Euro.
Meanwhile, risk appetite could continue to impact the currency pairing. If the current gloomy mood persists, the riskier Pound could struggle to strengthen against the safer single currency.
Data from the US could impact risk appetite later on today. Upbeat reports from America could, counterintuitively, sour the mood as it may boost expectations of more rate hikes from the Federal Reserve.
Likewise, the FOMC meeting minutes this evening could spark risk aversion, if they show a hawkish consensus among Fed policymakers.