The Pound Euro (GBP/EUR) exchange rate is fluctuating this morning, initially firming following the release of finalised services PMIs from both the UK and Eurozone before trimming its gains.
At the time of writing, the GBP/EUR exchange rate is trading at €1.1546, up marginally from this morning’s opening rate.
Pound (GBP) Firms following Upwardly Revised PMI
The Pound (GBP) climbed this morning as recent UK economic pessimism was challenged by a more positive PMI survey.
A higher-than-forecast finalised services PMI for the UK saw the Pound tick up, with a final reading of 49.3 significantly surpassing the expected 47.2.
The slower-than-expected contraction in the UK’s vital services industry indicates more economic resilience than expected. This helped Sterling to garner investors’ interest with the prospect of a slightly better outlook for the UK.
However, GBP’s gains may be stifled as recent fears of a UK economic slowdown persist. Although the PMI was revised higher, service sector activity still fell to an eight-month low in September.
Meanwhile, Andrew Bailey, Governor of the Bank of England (BoE), warned in article published today that the future remains uncertain.
Bailey said:
‘We have to be prepared for whatever comes next. That there could be further large shocks that we don’t know about.’
https://twitter.com/prospect_uk/status/1709463488790225401?s=20
Also impacting the Pound today are UK borrowing costs, which are reported to have a hit a thirty-year high this morning following a selloff in government bonds. Amid a mixed market mood, investors continue turning to the Pound’s safer peers as GBP struggles to hold on to its gains.
Euro (EUR) Wavers amid Mixed Data
The Euro (EUR) is choppy this morning following multiple data releases, as mixed results leave the Euro to trade without a clear direction.
The finalised Eurozone services PMI showed a marginal increase in September’s score, allowing the Euro to enjoy a brief uptick near the start of today’s session. Though still in contraction territory, the latest data release indicates that the services sector is now declining at a slower rate than before.
Also released today were the bloc’s retail rates, which showed a significant drop in monthly domestic sales, hitting -1.2% – far beneath the forecast -0.3%. This marks the tenth consecutive month of contraction within the Euro area’s retail sales, with concerns of a weakening economy pressuring the Euro.
Meanwhile, an uptick in monthly producer price inflation may have helped to cushion the Euro’s downside. As PPI feeds through into headline inflation, a rise in producer prices could pressure the European Central Bank (ECB) to consider further interest rate hikes.
Pound Euro Exchange Rate Forecast: Risk-Off Mood to Undermine Sterling?
Looking ahead, speeches from the ECB later today, including one from President Christine Lagarde, may influence the direction of the Euro. If Lagarde indicates that rates have peaked, the Euro could slip. However, if the ECB President indicates any hawkish policy following Philip Lane’s speech yesterday, the Euro may strengthen.
Amid a lack of notable UK data incoming, market mood may drive exchange rate movements, with a cautious tone likely to undermine the increasingly risk-sensitive Pound.