Pound euro exchange rate flat despite risk-on trading conditions
Article updated 16:00, 3/6/2024
The pound euro (GBP/EUR) exchange rate is trading in a narrow range this afternoon, despite an upbeat market mood.
In the wake of disappointing US data which prompted increased Federal Reserve interest rate cut bets, investors shifted towards riskier assets.
This allowed the increasingly risk-sensitive pound (GBP) to regain ground against some peers. However, due to an absence of impactful domestic data, Sterling appears unable to fully press its advantage.
Furthermore, a weakening US dollar (USD) allowed the euro (EUR) to find support due to the pairing’s inverse correlation.
At the time of writing, GBP/EUR is trading at around €1.1746, showing little movement from the morning’s opening rates.
Original article continues below:
Pound euro exchange rate stumbles despite strong manufacturing data
The pound euro exchange rate is weakening this morning, despite confirmation of growth in the UK manufacturing sector.
At the time of writing, GBP/EUR is trading at around €1.1721, a fall of roughly 0.2% from today’s opening levels.
Pound (GBP) wanes despite manufacturing sector growth
The pound (GBP) is under pressure this morning, despite confirmation of a return to growth in the UK manufacturing sector.
The finalised manufacturing PMI for May came in slightly below the preliminary estimate, printing at 51.2 as opposed to 51.3. Rising business optimism accounted for an improvement in activity.
However, export orders fell for the twenty-eighth consecutive month, and inflationary pressures appeared mixed, weakening Sterling.
Rob Dobson, Director at S&P Global Market Intelligence, commented:
‘The latest PMI survey data provided a mixed picture for price pressures at manufacturers, however. At the factory gate, output charge inflation strengthened for the fifth successive month and to its highest level in a year. That said, a solid easing in the rate of increase in input costs should help prevent price pressures from becoming embedded.’
Elsewhere, the pound may be being cushioned by a modestly upbeat market mood. Due to its increasingly risk-sensitive nature, GBP likely has a floor under it for any further losses, providing the mood remains cheery.
Euro (EUR) mixed amid softer-than-forecast manufacturing data
The euro (EUR) is trading in a mixed capacity this morning, as a softer-than-expected final manufacturing PMI caps its upside.
In May, the Eurozone’s final reading printed at 47.3, down from initial expectations of a 47.4 result. While this showed a clear improvement on April’s level of 45.7, it confirmed a continued contraction in the bloc’s manufacturing sector.
Dr Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented:
‘Optimism is growing, but companies remain cautious. They continue to reduce personnel and hold back on purchasing intermediate goods. This caution may also be reflected in the accelerated decrease in inventories of produced goods.’
Furthermore, the euro may be under pressure as analysis of the PMI reveals that inflationary pressures are easing somewhat.
This is likely bolstering the case for an interest rate cut in June from the European Central Bank (ECB). However, the path ahead remains unclear, limiting its losses.
Pound euro exchange rate forecast: German unemployment in focus
Looking ahead for the euro, the core catalyst of movement is likely to be the latest German unemployment data, due tomorrow.
In May, the unemployment rate is forecast to have held at 5.9%, which would keep it steady at a record high. If this is the case, it may weigh on the common currency due to signs of slack in the Eurozone’s largest economy.
Elsewhere, anticipation ahead of the European Central Bank’s latest interest rate decision is likely to build over the week. As a rate cut is expected, the euro may struggle for support.
For the pound, data releases are set to remain thin on the ground in the short term. This may keep GBP exposed to shifts in risk appetite. Due to the pound’s increasingly risk-sensitive nature, continually downbeat trade may cause further losses.