GBP/EUR exchange rate midweek update: pound trades sideways versus euro
The pound euro (GBP/EUR) exchange rate meandered through the 1.18 mid-range amid mixed PMIs from the UK and the Eurozone and diverging rate cut expectations.
(02/09/2024 to 04/09/2024)
Monday
The pound euro (GBP/EUR) exchange rate was subdued in the 1.18 mid-range following the release of both the UK’s and the Eurozone’s finalised manufacturing PMIs for August.
The UK’s index confirmed that manufacturing remained in the expansion territory by printing in line with market forecasts at 52.5, coming in at just over a two-year high. This underscored the ongoing robustness of the sector and kept the pound buoyant.
Meanwhile, the euro shrugged off a disappointing manufacturing PMI for the bloc, with the index confirming that the sector remained in contraction territory by printing in line with market expectations at 48.5, the lowest reading in an eight-month period – 50 marks the threshold between contraction and expansion. The data also highlighted two consecutive years of decline in the Eurozone’s manufacturing sector.
The single currency’s safe-haven status deflected attention from the lacklustre data amid a cautious market mood.
Tuesday
The pound was trapped in a narrow range, around 1.187, against the euro amid a lack of fresh UK data. Trimmed Bank of England (BoE) interest rate cut bets lent the UK currency some support in the face of thin trading conditions.
The euro was undermined by mounting rate cut speculation. News of easing price pressures in Germany and the wider Eurozone area supported the case for further policy loosening in September.
Dovish remarks from European Central Bank (ECB) policymaker Isabel Schnabel added weight to the speculation after she signalled that the bank will likely amend its monetary policy imminently to reflect cooling inflation.
Wednesday
The pound euro rate firmed slightly, to around 1.188, following finalised PMI data from Germany, which revealed that service sector activity in the bloc’s largest economy slowed in August – denting the single currency.
The Germany services PMI came in at 51.2, down from 52.5 in July – a deeper drop than the expected reading of 51.4. While less disappointing, the services PMI for the wider Eurozone also printed below forecasts.
A better-than-expected UK services PMI was overshadowed by widespread risk aversion, capping the pound’s gains. The UK’s finalised services index printed at 53.7 – a four-month high – up from 52.5 in July, exceeding projections of 53.3.
Looking ahead
The S&P Global/CIPS PMI for the UK construction industry hits the headlines on Thursday. If, as expected, it shows a slowdown in activity, the pound could be undermined.
The main catalysts for euro movement will be retail sales data for the bloc on Thursday, which is forecast to show an increase in sales volumes, and the GDP reading for the Eurozone, which is expected to remain unchanged.