GBP/EUR exchange rate midweek update: pound choppy against euro ahead of ECB rate decision
PMI survey data from the UK and Eurozone impact the pound and euro ahead of the ECB's interest rate decision.
(03/06/2024 to 05/06/2024)
Monday
The pound euro (GBP/EUR) exchange rate briefly dipped from the 1.17 mid-range to 1.172 despite robust UK manufacturing data that confirmed the sector sprung back to growth in May.
The closely watched S&P Global/CIPS UK manufacturing PMI survey increased to 51.2 last month, after retreating to 49.1 in April. A score above 50 indicates sector growth, while a score below this means it’s contracting.
An upbeat market mood cushioned the pound’s fall and helped it retrace its losses after investors shifted towards riskier assets in the wake of waning US Federal Reserve rate cut bets that undermined the safe-haven euro.
Tuesday
The euro was muted following news of a seventeenth consecutive increase in German unemployment. However, with investors focused on Thursday’s European Central Bank (ECB) rate decision, the downside impact of the lacklustre jobs data from the Eurozone’s largest economy was subdued.
The pound edged down to 1.173 against the euro amid a more cautious market mood that was compounded by downbeat UK retail data – before recovering.
The British Retail Consortium’s (BRC) retail sales monitor ticked up by a modest 0.4% in May, following April’s 4.4% decline, but fell short of economists’ forecasts for a 1.2% rise.
Wednesday
The pound firmed to around 1.176 against the euro after finalised PMI data showed services activity in Germany exceeded forecasts, while activity in the wider bloc slowed.
Despite a better-than-expected finalised PMI reading from the German economy, the single currency wavered ahead of an expected interest rate cut from the ECB on Thursday.
These expectations were reinforced by dovish comments from ECB policymaker and Slovakian central bank governor Peter Kazimir who affirmed that inflation is cooling sufficiently for the central bank to loosen policy.
The pound’s gains were capped by a slowdown in the UK's services sector in May, with inflation hitting a three-year low.
The S&P Global UK services PMI survey scored 52.9, down from 55 the previous month. While printing in line with economists' predictions, it represents the slowest rate of expansion since November 2023.
Economists believe the slowdown in price rises could play a pivotal role as Bank of England (BoE) policymakers prepare to vote on a potential interest rate cut on 20 June.
Looking ahead
A rate cut is highly anticipated following the ECB’s monetary policy meeting on Thursday, which would make it the first of the major central banks to cut interest rates this year. If rate-setters decide to loosen policy, it’s unlikely to have a major impact on the euro, given that it wouldn’t come as a surprise.
An ongoing UK data lull means the pound will take its queues from external factors, like the ECB’s accompanying meeting statement.