GBP/EUR exchange rate midweek update: pound falls to 10-day low against euro
The pound fell into the 1.16 mid-range against the euro, which marked a 10-day low, following the release of mixed Eurozone inflation data.
(01/04/2024 to 03/04/2024)
Following an empty bank holiday Monday data docket, the pound to euro (GBP/EUR) exchange rate began to firm just below 1.17 on Tuesday amid easing German inflation and a better-than-forecast UK manufacturing PMI.
German inflation cooled for a third month in March, stoking expectations that the European Central Bank (ECB) will start unwinding interest rates in June, which soured euro sentiment. Consumer prices rose an annual 2.3% last month, down from 2.7% in February and less than the 2.4% forecast.
The pound was buoyed by an upward revision to the latest UK purchasing managers index (PMI) that saw the manufacturing sector emerge from the doldrums. The S&P Global UK manufacturing PMI was revised up to 50.3 in last month’s finalised reading, exceeding expectations of 49.9 and rising from the original 47.5 print.
This represented the first uptick in factory production in 20 months, with the index printing in expansion territory following a lengthy period of negative growth.
The euro was initially flat on Wednesday, despite the release of softer-than-forecast Eurozone inflation data that cooled for a third straight month before stubbornly high services prices gave the single currency boost.
Headline inflation in the bloc, which was forecast to remain unchanged, cooled from 2.6% to 2.4%, while core inflation eased from 3.1% to 2.9%, overshooting predictions for a more modest fall to 3%.
The single currency quickly trimmed losses as it became clear that services inflation in the single currency area remains relatively high at an unchanged 4% year-on-year in March, and underlying inflation has risen sharply since the start of the year. Interest rate cut expectations were dampened as the finer details of the report came to light, causing the pound, which was left exposed by a data lull, to fall to a 10-day low in the 1.16 mid-range.
Looking ahead
The ECB’s latest monetary policy meeting minutes are released on Thursday. With markets pricing in a primary rate cut in June, investors will be looking for rate cut signals both from the minutes and subsequent comments from ECB officials.
The UK’s final S&P global services PMI for March is expected to remain in growth territory on Thursday, while the construction PMI is forecast to touch the growth threshold on Friday. If the prints match expectations, providing further signs of improving activity in the UK economy, the pound could find some support.