- Solid Eurozone Data Boosts Euro (EUR) – But Eurozone remains in deflation
- Eurozone’s Manufacturing PMIs Mixed – Final German score lower-than-expected in May
- Pound (GBP) Plummets as ‘Leave’ Camp Strengthens – Manufacturing PMI climbs above 50
- Forecast: ECB Decision Today – Policymakers slightly dovish on outlook
Euro Slips 0.3% Following ECB Announcement
With the European Central Bank (ECB) continuing to maintain that there is more it could do to support the Eurozone’s economy, the Euro failed to hold previous gains against the Pound and dipped 0.3% towards the close of the European session.
The EUR/GBP pairing was trending in the region of 0.7736
EUR/GBP Edges Higher before ECB Announcement
With the ECB decision looming, the Euro to Pound Sterling (EUR/GBP) exchange rate was standing firm at 0.7766.
The day’s main UK data, Markit’s Construction PMI, had little impact on Sterling trading despite showing a slightly weaker-than-forecast result.
However, any hints at an expansion of fiscal policy from the European Central Bank (ECB) today could send the Euro lower against its rivals.
Investors will also be looking ahead to tomorrow and the release of the UK’s Services PMI.
(Previously updated 17:20 01/06/2016)
The Euro to Pound Sterling (EUR/GBP) exchange rate gained on Tuesday following poor UK news, including polls that indicated a strengthening ‘Leave’ campaign with the EU referendum now weeks away. Eurozone data was solid, but not strong enough to send the Euro surging.
EUR/GBP had previously hit a three-month-low of 0.7566 but has since gained over 110 pips and continues to climb slightly in the Euro’s favour. The pair is 0.4% up on Wednesday and trends in the region of 0.7720.
Euro (EUR) Bolstered by Solid Data, but Investors Remain Concerned
Predictably, the Eurozone’s recent datasets have been mixed, with limited positive news allowing the Euro to advance slightly.
Tuesday’s data was considerably positive for the German economy, as the key unemployment rate was revealed to be 6.1%, the lowest level of unemployment the nation has seen since the German reunification in the 1990s. It was previously 6.2%.
Unemployment itself fell by -11k, despite being expected to only drop by -5k. The Eurozone’s overall unemployment rate remained at 10.2%, which was a positive sign for investors.
Eurozone core year-on-year Consumer Price Index (CPI) was also solid as it gained from 0.7% to 0.8% as investors expected, while the newest CPI estimate improved from -0.2% to -0.1%.
Unfortunately this negative score revealed that the Eurozone remained in deflation. GDP figures were also unable to meet the European Central Bank’s (ECB) targets and as a result the Euro’s gains were muted.
Pound (GBP) Plummets on ‘Brexit’ Bets Despite Unexpectedly Positive PMI
Pound favour quickly soured during Tuesday’s session as markets reacted to new ‘Brexit comments and polls released through the bank holiday weekend.
Due to the ‘Leave’ campaign’s recent rhetoric focus on immigration, its popularity increased considerably and as a result support for the ‘Leave’ camp strengthened.
The latest polls conducted by The Guardian revealed that both online and telephone polls currently lean towards ‘Leave’;
‘Previous polls have tended to show voters surveyed online to be more in favour of Britain leaving the EU. But in the latest ICM research, carried out for the Guardian, both methodologies yielded the same result – a majority in favour of leaving.
“Our poll rather unhinges a few accepted orthodoxies,” said ICM’s director, Martin Boon. “It is only one poll but, in a rather unexpected reverse of polling assumptions so far, both our phone poll and our online poll are consistent on both vote intentions and on the EU referendum.”’
Domestic data did little to help the Pound’s appeal in the face of economic uncertainty. Wednesday’s Nationwide house price report came in with a low score of 4.7%, down from 4.9% and below the expected 4.8%. Mortgage approvals were down, slipping from 70.3k to 66.3k, past the projected 67.9k.
Net consumer credit also disappointed investors by undermining forecasts of 1.6b by falling from 1.8b to 1.3b. However, Markit’s latest Manufacturing PMI unexpected escaped contraction by scoring 50.1, despite being expected to only lighten from 49.4 to 49.6.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: European Central Bank (ECB) in Focus
The Euro to Pound Sterling (EUR/GBP) exchange rate could continue to shift in the Euro’s favour in the coming days if the European Central Bank (ECB) expresses confidence in its monetary policy in Thursday’s key meeting.
The ECB is not currently expected to introduce any additional easing methods and will likely leave the key Eurozone interest rate at 0.00%.
However, if recent difficulties in the Eurozone economy leads policymakers to hint at further easing in the coming months, the Euro could plummet and lose this week’s gains.
The ECB figures due for release on Thursday include the key interest rate, the deposit facility rate, the marginal lending facility and the asset purchase target. All figures are widely expected to remain the same but an unexpected change would certainly spark movement in the Euro.
British data will be relatively quiet, but investors may react slightly if Construction PMI doesn’t match forecasts. The figure is expected to stay at 52.0, but a drop from this could see the Pound extending its losses.
The Euro to Pound Sterling (EUR/GBP) exchange rate trends in the region of 0.7720, while the Pound Sterling to Euro (GBP/EUR) exchange rate trades around 1.2950.