GBP/EUR exchange rate midweek update: pound meanders between 1.16 and 1.17 against euro
An underwhelming UK manufacturing print, which showed the sector returned to contraction, trimmed the pound's earlier gains against the euro.
(29/04/2024 to 01/05/2024)
Monday
The pound euro (GBP/EUR) exchange rate advanced above 1.17 following a mixed German CPI release that weighed on the euro.
April’s preliminary year-on-year reading printed just below market expectations, holding steady at 2.2% rather than warming to a forecasted 2.3%.
Germany’s month-on-month reading did increase, from 0.4% to 0.5%, but missed a 0.6% expectation.
The pound traded without a clear direction amid an absence of UK economic data but continued to enjoy modest support from increasingly risk-sensitive market conditions.
Tuesday
Stronger-than-expected Eurozone GDP and core inflation figures led investors to dial back European Central Bank (ECB) interest rate cut bets, which underpinned the euro.
Growth in the Eurozone economy increased from 0% to 0.3% in the first quarter of 2024, exceeding expectations for a more modest 0.1% expansion.
April’s preliminary CPI figures from the bloc reported that headline inflation remained static at 2.4%, while core inflation eased from 2.9% to 2.7%, missing forecasts it would drop as low as 2.6%.
Stronger-than-expected growth and stubborn inflation figures tempered expectations for ECB interest rate cuts through the second half of 2024, forcing the pound euro rate to trade on the back foot.
A shift to a more cautious market mood dented the pound amid uncertainty over a potential ceasefire agreement between Israel and Gaza.
Wednesday
The pound slipped below 1.17 following downbeat UK manufacturing data.
The sector returned to contraction territory in April as output and new orders decline and cost pressures increase, the latest poll of factory purchasing managers found.
The S&P Global’s manufacturing PMI dropped to 49.1 last month, down from March’s 20-month high of 50.3. A reading below 50 marks contraction; this ‘final reading’ is slightly higher than the ‘flash’ of 48.7.
The UK currency also remained exposed to a downbeat market mood amid a lack of other data, which left investors favouring safer assets.
The euro was muted due to market closures in observance of Labour Day. Consequently, notable US data had a bigger influence over the single currency. Notably, the ISM’s manufacturing PMI which showed US manufacturing contracted in April, lending the euro marginal support.
Looking ahead
The unemployment rate for March from the Eurozone is scheduled to print on Friday. Economists forecast the reading to remain near record lows at 6.5%. Signs of robust employment could give the ECB room to keep interest rates elevated, potentially supporting the euro.
Impactful data is thin on the ground for the pound. The final service sector PMI for April on Friday could create tailwinds if it confirms an expansion in the sector.