GBP/EUR exchange rate midweek update: pound hits fresh two-year high versus euro
The pound euro (GBP/EUR) exchange rate jumped above the 1.20 benchmark on Monday, striking a fresh two-year high following PMI data from the UK and the Eurozone.
(23/09/2024 to 25/09/2024)
Monday
The pound euro (GBP/EUR) exchange rate broke through the 1.20 benchmark, hitting a fresh two-year high following the publication of underwhelming PMIs from the UK and the Eurozone.
The UK’s preliminary PMI reading undermined the pound after it was reported that activity in both the services and manufacturing sectors slowed in September.
The index for the UK’s powerhouse services sector dropped from 53.7 to 52.8 rather than a more modest 53.5 estimate, while the manufacturing index dropped from 52.5 to 51.5 rather than staying unchanged as expected. On the plus side, both readings remain in expansion territory (a reading above 50) and the composite print pointed to moderate growth levels in the UK, keeping the pound buoyant.
The euro was dealt a chastening blow by the Eurozone’s latest PMI data after both the preliminary manufacturing and services indices for September fell short of forecasts. This left the manufacturing index languishing in the contraction zone (a reading below 50), while the services sector remained in expansion territory by the skin of its teeth.
The worse-than-expected PMI print applied further pressure on the euro after the data reinforced current Eurozone economic pessimism.
Tuesday
The pound was stopped in its tracks by dovish-leaning comments from Bank of England (BoE) governor, Andrew Bailey who said: “I do think the path for interest rates will be downwards, gradually,”
Bailey added that he was "very encouraged" by the downward trajectory of inflation since it topped out at 11.1% almost two years ago.
The euro’s upside potential was limited by a survey showing German business morale fell for a fourth straight month in September and by more than expected, adding to signs that the bloc’s largest economy may have slipped into recession.
The German IFO business climate index declined to 85.4 in September from 86.6 in August, falling further than the forecast reading of 86.
Wednesday
The pound euro rate retreated into the 1.19 mid-range amid a return to risk-off market flows that were compounded by an absence of market-moving data.
The safe-haven euro firmed following the shift in market appetite from a risk-on mood earlier in the week when China announced a huge raft of stimulus measures aimed at boosting the world’s second-largest economy.
However, the single currency’s upside potential was limited by a lack of economic data from the bloc, leaving it vulnerable to the current downbeat economic outlook in the region – with Germany on the brink of recession.
Looking ahead
The latest German consumer confidence survey for October is scheduled for release on Thursday. The data is forecast to report an improvement in consumer morale, which could support the euro.
An empty UK economic data calendar for the remainder of the week will likely see the pound trade in line with market risk appetite.