Pound Euro (GBP/EUR) Exchange Rate Drops as Pound Falters
The Pound Euro (GBP/EUR) exchange rate trended lower this morning following yesterday’s brief climb. High government borrowing costs depress the Pound (GBP), while the Euro (EUR) is buoyed by a better-than-expected German trade balance.
At the time of writing, GBP/EUR is trading at €1.1540, following an initial tumble as the European session opened.
Pound (GBP) Tumbles on Weak Data and Rising Government Borrowing Costs
The Pound is facing headwinds today, after regaining some of its former losses during yesterday’s session.
Weighing on the currency are record-high government borrowing costs, as well as a disappointing construction PMI. UK 30-year bond yields rose to a 25-year high midweek, reflecting the impact of sustained high interest rates.
According to experts, rising bond yields suggest dwindling appetite among investors to take on government debt, in part due to inflation. Rising inflation undercuts the value of money received for owning the debt, prompting investors to demand a higher yield.
Moreover, the UK’s construction PMI highlights ongoing concerns within the housing sector, sapping GBP morale. Dropping into contraction for the first time since June, today’s data reflects a reduction in house building projects amid rising borrowing costs and weak demand conditions.
Tim Moore, Economics Director at S&P Global Market Intelligence, commented on the release:
‘The latest downturn marked the worst overall performance since the early stages of the pandemic… [Furthermore], the survey’s forward-looking measures once again remain relatively downbeat as order books decreased at an accelerated pace and business activity expectations eased to the lowest so far this year.’
Euro (EUR) Wavers amid Mixed Data
The Euro is trending up against the Pound today but fluctuates in other exchange rates as trading stimuli is mixed.
Germany’s trade balance data printed above expectations this morning, lending some tailwinds: rather than declining as forecast, it increased to €16.6bn. Nevertheless, the news was not entirely positive, as exports declined by 1.2% to hit the lowest value since March 2022 – much worse than forecasts of a 0.4% drop.
Moreover, construction activity fell across the bloc as in the UK. While activity in the wider Euro area increased – albeit by less than expected – Germany’s construction PMI fell from 41.5 to 39.3: a dismal reading.
A relatively hawkish commentary from the European Central Bank (ECB)’s vice president, Luis de Guindos, may have helped to cap losses for the single currency. De Guindos remarked earlier today that it was ‘premature to discuss rate cuts’ – although his comments appeared to have little impact.
Elsewhere, mixed US Dollar (USD) sentiment may be benefiting the negatively correlated Euro. Ahead of this afternoon’s jobless claims release, USD investors are trading with relative caution – yesterday’s ADP employment data disappointed, deterring bullish bets today.
GBP/EUR Exchange Rate Forecast: German Factory Orders in Focus
Into tomorrow, Germany’s latest factory orders will likely set the tone of the Pound Euro exchange rate. A lack of UK data leaves GBP/EUR at the mercy of Eurozone releases: if factory orders climbed in August as expected, the exchange rate may well sink further.
Other possible factors in determining the direction of trade include risk sentiment and US Dollar appeal. Speeches this afternoon from Federal Reserve officials may boost USD, depressing the Euro and consequently buoying GBP/EUR; tomorrow, US employment data is likely to have a similar effect.