Pound euro (GBP/EUR) edges higher as Eurozone PPI cools
(Updated 16:05, 28/06/24) The pound euro (GBP/EUR) exchange rate is posting some modest gains this afternoon following further signs of disinflation in the Eurozone.
The Euro bloc’s latest producer price index eased slightly more than forecast in May by 0.2%, in comparison to market forecasts of a 0.1% decrease. Further signs of cooling price pressures in the Eurozone reinforced speculations that the European Central Bank (ECB) may continue to lower interest rates sometime in the third quarter of 2024, serving to undermine the euro (EUR) this afternoon.
Looking to the pound (GBP), a lack of any further UK releases left GBP vulnerable to Britain’s pre-election jitters. Hopes of a stable Labour victory this week lent GBP modest support as markets appeared optimistic about the possibility of a stable elective outcome.
Elsewhere, an increasing appetite for risk saw investors favouring riskier assets, lending the increasingly risk-sensitive pound some additional support.
At the time of writing, GBP/EUR is trading at €1.1818, up approximately 0.2% from this morning’s opening levels.
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Pound euro (GBP/EUR) exchange rate fluctuates as services growth eases
The pound euro (GBP/EUR) exchange rate is largely subdued this morning amid confirmation of slowing services growth in both the UK and Eurozone.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1799, virtually unchanged from this morning’s opening rate.
Pound (GBP) wavers following services PMI
The pound (GBP) is struggling to garner investor interest this morning following the UK’s latest PMI data.
The UK’s finalised services PMI eased slightly in June to 52.1 in alignment with market forecasts, marginally slowing from the previous month’s reading of 52.9.
Confirmation of a second successive month of slowing growth in the UK’s vital services sector seems to leave Sterling on the backfoot this morning amid a lack of high-impact releases.
Joe Hayes, Principal Economist at S&P Global Market Intelligence:
‘We are seeing some evidence of a pre-general election seize up across the UK services economy, with growth in business activity slowing to a seven-month low in June as the prospect of a change in government led to the adoption of a “wait-and-see” approach by some, restraining sales.’
Meanwhile, GBP investors may remain reluctant to place any aggressive bets on Sterling ahead of the UK’s imminent general election. As Britons prepare to cast their votes tomorrow, the pound could struggle to find a clear direction in the interim.
Euro (EUR) pressured by services slowdown
The euro (EUR) is struggling to attract investor support this morning following a mild softening in both the German and Eurozone’s service sectors.
Germany’s finalised services PMI fell slightly more than forecast in June, printing at 53.1, just below market projections of 53.5.
Meanwhile, the Eurozone’s services sector expanded for a fifth consecutive month, though slightly lost momentum in June. The finalised services PMI softened less than forecast last month, modestly slipping from May’s reading of 53.2 to 52.8, though beating forecasts of a more significant slowdown to 52.6.
Economists at the Hamburg Commercial Bank (HCOB) noted:
‘Considering the upward revision versus the preliminary flash PMI figures, the chances are good that service providers will remain the decisive force keeping overall economic growth in positive territory over the rest of the year.’
However, EUR sentiment may remain sapped this morning, with the release dipping to a three-month low and confirming the first decline in euro bloc services demand since February.
Pound euro exchange rate forecast: UK election in focus
Looking ahead, the UK’s general election is due to take place tomorrow. Any poll-day surprises may imbue GBP exchange rates with notable volatility, with political uncertainty likely to dent Sterling.
A widely expected Labour landslide, however, will likely boost investor confidence in the UK and GBP alike. Following a tumultuous period of British political instability and the apparent rise of the far-right in both Europe and the US, a clear victory tomorrow could restore a sense of economic faith in the UK, amid hopes of a steadier foundation in the UK.
Looking to the Eurozone, the latest producer price index (PPI) is due for release later this morning. Economists expect the index to slip by 0.1% in May, marking a seventh consecutive monthly decline. Often seen as a precursor to wider inflationary data, easing producer prices may weigh on the common currency, heightening bets of a September rate cut from the ECB.