Pound Euro (GBP/EUR) exchange rate edges higher amid preliminary PMIs
The Pound Euro (GBP/EUR) exchange rate is gaining ground this morning as the UK’s purchasing managers index (PMI) estimates beat expectations.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1706, up approximately 0.2% from this morning’s opening rate.
Pound (GBP) strengthens on upbeat PMIs
The Pound (GBP) is edging higher against most of its major peers this morning following an upbeat services PMI price indicator.
The manufacturing sector PMI increased to 47.3 in January, surpassing estimates and reaching a nine-month high, though remaining firmly in contraction territory, below readings of 50.
The services PMI also unexpectedly rose to 53.8 in January, increasing at the sharpest rate in eight months. Continued growth in the vital services sector is ultimately serving to boost Sterling sentiment this morning, amid renewed signs of UK economic expansion.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence commented:
‘The survey data points to the economy growing at a quarterly rate of 0.2% after a flat fourth quarter, therefore skirting recession and showing signs of renewed momentum.’
Euro (EUR) wavers following lacklustre PMIs
The Euro (EUR) is holding steady this morning despite weaker-than-forecast PMI data.
The Eurozone’s services sector index came in at 48.4 in January, just below forecasts of 49, contracting for a sixth consecutive month. Similarly, the manufacturing sector remained in contraction territory for an eleventh consecutive month, coming in slightly above expectations, at 46.6.
However, Hamburg Commercial Bank (HCOB) has observed that while the latest PMI’s point to sluggish economic growth within the private sector, the data supports speculations of prolonged rate holds in the coming months:
‘In the ongoing discourse surrounding the optimal timing of rate cuts by the ECB, the PMI price indicators align with the sentiments of the hawks. They are all about shouting “hold your horses” telling everyone to take it slow and not rush into early cuts.’
Furthermore, ahead of the central bank’s hotly anticipated interest rate decision tomorrow, the Euro is being supported by its negative US Dollar (USD) correlation. Cheery trade dents the safe-haven ‘Greenback’ today, thereby buoying EUR.
Pound Euro exchange rate forecast: ECB interest rate decision in focus
Looking forwards, the ECB is due to deliver its latest interest rate decision tomorrow. While policymakers have pushed back against earlier rate cuts in recent weeks, economists expect to see rates left unchanged at 4.5%. This may lift the common currency amid signs that the ECB may keep rates ‘higher for longer’, as advocated by policymakers this month.
Accompanying press conference and speech from ECB President Christine Lagarde may fuel further EUR volatility, should the central bank’s hawkish rhetoric prevail.
Also due on Thursday is Germany’s Ifo business climate indicator for January. Forecast to edge slightly higher to 86.7 this month, the Euro may garner investor interest amid improving German business sentiment.
Looking to the UK, the Confederation of British Industry (CBI) distributive trade data is due out on Thursday. The mildly impactful data could serve to reinforce concerns of a loosening UK retail sector, with a forecast monthly retail sales balance of -18. Should the data print in line with expectations, a ninth consecutive negative reading could serve to sour Sterling sentiment.