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EUR GBP Exchange Rates Slide as UK Services PMI Beats Expectations

  • EUR GBP Slides to 0.8903 – GBP EUR Climbs to 1.1220
  • BoE Minutes Deemed Dovish – EUR GBP Initially Soars
  • Markit UK Services PMI Beats Forecasts – GBP Regains some Ground

The Euro Pound exchange rate soared by almost 2% yesterday as markets reacted to what they deemed dovish policy sentiment in the Bank of England’s (BoE) meeting minutes. This stabilised as of Friday morning, however, with the UK’s Markit services PMI beating forecasts and propelling the Pound back into the lead.

BoE Rate Hike Undermined by Dovish Minutes – EUR Exchange Rates Initially Take the Lead

The BoE voted 7-2 to raise interest rates by 0.25 basis points yesterday – the first rate hike from the BoE in some 10 years.

Whilst this news would generally be regarded as positive and send the nation’s respective currency soaring, demand for the Pound was undermined by the market reaction to the accompanying statement.

Markets were predominantly concerned with two elements within the statement, the first being the omission of a line referring to the bank’s intentions for pushing for a fast pace of rate hikes, and the second being the assertion that future rate hikes would be ‘limited and gradual’.

This news quickly sent the Pound toppling from recent highs, falling almost 2% against the single currency before stabilising as of Friday morning, bolstered once again by a positive data print.

UK Markit Services PMI Proves Positive – GBP Exchange Rates Climb Once Again

The IHS Markit UK services PMI leapt to a reading of 55.6 in October, up from September’s 53.6 and smashing the market expectation of a 53.3 rise.

This reading demonstrated the fastest expansion in services activity in some seven months, with a rebound in new order growth thanks to improving domestic demand and a range of successful product launches propelling the figure.

Input costs were also revealed to have continued to climb on the back of higher energy bills, food prices, transport costs and staff salaries.

The services sector in the UK makes up a significant percentage of the UK GDP’s, which makes this reading the closest watched of the PMI releases and arguably the most important. Because of this, market demand for Sterling quickly resulted in the currency gaining some ground.

EUR GBP Outlook: Benoît Cœuré Speech Ahead

Today is a quiet data day for the Euro, with the only notable release likely to be a speech from European Central Bank Policymaker Benoît Cœuré tonight.

The discussion in which Cœuré will take part is titled; ‘Economic Forum: The Global Financial Cycle – Causes, Consequences and Policy Responses’.

Cœuré is not, however, expected to offer any new revelations regarding the monetary policy of the ECB, though a hawkish soundbite will likely propel the Euro whilst an attitude of caution could put it under even more pressure.

Next week will feature a range of Markit PMI releases relating to the Euro Area, along with a run of UK industrial production, manufacturing production, construction output figures and finally the UK’s trade balance reading for September.