Pound euro (GBP/EUR) strengthens as Eurozone industrial production weakens
(Updated 16:35, 13/06/24) The pound euro (GBP/EUR) exchange rate is strengthening this afternoon following a surprise contraction in the Eurozone’s industrial activity.
Industrial production fell by 0.2% in April, missing market forecasts of a 0.2% increase and slowing from the previous month’s downwardly revised 0.5% growth.
However, economists noted the volatile nature of recent releases from the industrial sector, amid shifting European Central Bank (ECB) monetary policy expectations and turning inventory cycles, which served to cushion the euro’s (EUR) downside.
Leo Barincou, Senior Economist at Oxford Economics, said:
‘Despite today’s lacklustre print, we still think Europe’s industrial sector hit a trough in the first quarter and will register sustained growth soon. In the near term, industry will benefit from a turning inventory cycle as companies rebuild their inventories. Gradual monetary loosening will also be a major tailwind.’
Elsewhere, a strengthening US dollar (USD) further stymied the euro, due to the currency pairing’s negative trading relationship.
Looking ahead, could dovish ECB commentary place additional pressure on the single currency as the week nears an end?
At the time of writing, GBP/EUR is trading at €1.1863, up approximately 0.2% from this mornings’ opening levels.
Original article continues below:
Pound euro (GBP/EUR) exchange rate fluctuates ahead of Eurozone release
The pound euro (GBP/EUR) exchange rate is largely subdued this morning ahead of the latest industrial production data from the Eurozone.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1835, virtually unchanged from this morning’s opening rate.
Pound (GBP) buoyed by reduced BoE rate cut bets
The pound (GBP) is trading without a clear direction this morning amid a lack of fresh UK data.
With macroeconomic releases in short supply, deferred Bank of England (BoE) interest rate cut expectations serve to keep Sterling afloat.
With a majority of financial markets now pricing in just one interest rate cut this year, GBP manages to hold steady against its rivals despite thin British trading conditions as the weekend approaches.
Yael Selfin, Chief UK economist at KPMG, said:
‘While we are seeing some tentative signs of cooling in the labour market, service sector inflation remains persistently high and it is likely the MPC would want to wait until the next set of forecasts and a few more data points before it embarks on its first rate cut.’
With one more batch of UK jobs data and two more sets of inflation data due for release before the central bank’s monetary policy meeting in August, an unclear timeline of BoE rate cuts may continue to buoy the pound.
Euro (EUR) subdued ahead of factory data
The euro (EUR) is trading sideways this morning after retreating from yesterday’s brief rally, as markets await the Eurozone’s latest industrial production data.
As a cooler-than-forecast US inflation report sent the US dollar (USD) tumbling yesterday, EUR initially capitalised on its negative correlation with the ‘greenback’, before falling back once again amid a spell of risk-averse trade.
The euro continues to relinquish its recent gains this morning ahead of potentially market moving industry data, with EUR investors seemingly reluctant to place any aggressive bets on the common currency in the meantime.
In addition to this ramped up European Central Bank (ECB) interest rate cut expectations continue to cast a shadow over the single currency, souring EUR sentiment.
Following the central bank’s first interest rate reduction last week, policymaker Bostjan Vasle affirmed that the ECB remains open to further rate cuts, stating:
‘It is possible for more rate cuts if baseline scenario holds. Also more rate cuts next year if disinflation process continues. But there is a risk that the process could slow down. Wage momentum is still relatively strong.’
Pound euro exchange rate forecast: Eurozone industrial production in focus
Looking ahead, the core catalyst of EUR movement will likely be the Eurozone’s looming industrial production data. Economists expect the pace of industrial activity to have slowed in April, with 0.2% growth, in comparison to the previous month’s 0.6% increase.
Should the data print as forecast, a third consecutive month of slowing industrial activity may see the common currency falter against its rivals, pointing to ongoing economic loosening in the Euro area.
Looking to the UK, a lack of fresh releases through the end of the week will likely leave Sterling vulnerable to global risk dynamics, with any bullish trading conditions underpinning the increasingly risk-sensitive currency. Alternatively, gloomy trade may see GBP falter against its safe-haven rivals.