GBP/EUR exchange rate trades within narrow boundaries
The pound euro (GBP/EUR) exchange rate weakened yesterday evening and traded with little movement overnight, yet recouped its losses into today’s session. Hindering euro (EUR) gains is likely this morning’s finalised PMI data, which revealed that service sector activity in Germany slowed last month.
At the time of writing, GBP/EUR is trading at €1.1880, marginally higher than this time yesterday.
Euro (EUR) gains capped by uninspiring services data
The euro is struggling to climb in several exchange rates today, depressed by finalised PMI data released this morning.
Service sector activity in Germany, the bloc’s largest economy, printed at 51.2 for the month of August, down from 52.5 in July. The slowdown was deeper than expected; earlier estimates indicated a reading of 51.4.
Moreover, the services PMI for the wider Eurozone missed forecasts of 53.3, printing instead at 52.9. Marking an increase from the previous month’s 51.9, this release wasn’t quite so disappointing as Germany’s.
Addressing Germany’s data, S&P global cited an ‘even smaller’ increase in new business in August than in the previous two months. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, commented:
‘Without growth in the private service sector, Germany’s economic picture would be pretty grim. But that support is starting to weaken.’
The outlook ahead for the single currency is relatively downbeat; given the decline in inflationary pressures and weak economic growth in the Eurozone, markets fear that the European Central Bank (ECB) may rapidly unwind monetary policy.
Pound (GBP) struggles to overcome risk-off mood
The pound (GBP) is trading broadly sideways today, despite a better-than-expected services PMI.
The UK’s finalised services PMI printed at 53.7 from 52.5 the previous month, beating forecasts of 53.3: inflows of new business expanded sharply, while survey respondents noted a marked reduction in the backlogs of work in the period.
Yet despite the upbeat data and central bank tailwinds – markets expect the Bank of England to reduce interest rates slowly and in small increments – Sterling was pressured by widespread risk aversion.
Ahead of Friday’s US jobs data, traders are on edge, cautious of placing bullish bets. Nonfarm payrolls data will likely influence the Federal Reserve’s interest rate decision in September: a further slowdown in labour demand and higher unemployment could trigger a bigger rate cut from the Fed.
A major policy decision from the Fed would have implications for the rest of the currency markets, including Pound exchange rates, as a dovish move from the Fed paints the BoE in a more hawkish light.
This would tally with comments made at last week’s Jackson Hole Symposium, in which Powell said the time had come for the Fed to cut rates, while Governor Bailey warned it was ‘too early to declare victory over inflation’ in the UK.’
GBP/EUR exchange rate forecast: JOLTs in focus
The pound euro exchange rate is likely to trade through the remainder of the session according to the latest US JOLTs release.
The JOLTS job openings report reveals if certain sectors are cutting down on their demand for labour force. For July, it is expected to show that employers posted 8.1 million fresh job vacancies from 8.184 million a month earlier – such an incremental difference is unlikely to inspire expectations of immediate Fed intervention.
Nevertheless, if the release prints below forecasts, the US dollar (USD) could weaken, buoying the negatively-correlated euro and thus dampening GBP/EUR.