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Disappointing UK Construction PMI Offers Euro Pound Exchange Rate Support

A surprisingly weak UK construction PMI helped to bolster the Euro Pound exchange rate, with market jitters increasing in anticipation of Thursday’s Bank of England (BoE) rate decision.

This loss of momentum within the construction sector undermined hopes that the UK economy started the third quarter on a stronger footing, reversing some of the recent bullishness of the Pound.

Even so, if the corresponding services PMI proves positive this could see the EUR GBP exchange rate return to a softer footing.

As the service sector remains responsible for the vast majority of economic activity in the UK a strong showing here could encourage investors to take greater confidence in the domestic outlook.

However, the main focus of markets on Thursday will be the BoE policy meeting and the release of the Bank’s quarterly Inflation Report.

Investors are keen to get a fresh gauge of the split of opinion amongst the Monetary Policy Committee (MPC), even though the doves are likely to continue to hold the balance at this juncture.

Any increased signs of hawkishness amongst policymakers could prompt a Pound rally, though, as markets are still prone to speculation over the possibility of an interest rate hike coming before the end of the year.

On the other hand, if the Inflation Report shows a downward revision to any of the BoE’s forecasts this could offer the EUR GBP exchange rate a strong rallying point.

Optimistic ECB Bulletin Could Shore Up Euro

Confidence in the Euro could weaken, meanwhile, in response to the European Central Bank’s (ECB) latest Economic Bulletin.

If the central bank continues to adopt a relatively dovish tone EUR exchange rates may struggle to find any particular traction, even though signs still point towards a strengthening Eurozone economy.

As analysts at Wells Fargo noted:

‘Although the unemployment rate has receded to an 8-year low, there are few signs yet of a sustained upturn in CPI inflation in the euro area. As a result, we expect the ECB will proceed with caution when shifting from an easing to a tightening policy framework, just like its Federal Reserve counterpart did a few years ago.’

However, if the ECB appears to have a more positive outlook investors could be encouraged to pile back into the Euro ahead of the weekend.

Any weakness in June’s Eurozone retail sales data could also dent the appeal of the single currency, although US Dollar softness is likely to continue to benefit EUR exchange rates in the short term.

Current EUR GBP Interbank Exchange Rates

At the time of writing, the Euro Pound exchange rate was trending narrowly around 0.8945. Meanwhile, the Pound Euro exchange rate was on a weaker footing in the region of 1.1178.