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Euro Pound (EUR/GBP) Exchange Rate Slides Lower in Spite of Solid Eurozone PMIs


Euro Pound (EUR/GBP) Exchange Rate Shrugs Off Better-Than-Expected Eurozone PMIs

Although the latest round of Eurozone PMIs generally bettered forecast this has failed to boost the Euro to Pound (EUR/GBP) exchange rate at the start of the week.

The composite Eurozone PMI defied expectations of a dip to hold steady at 55.2 on the month, indicating solid economic growth, although this was not enough to shore up Euro (EUR) exchange rates.

As Chris Williamson, Chief Business Economist at IHS Markit, commented:

‘It’s also clear that underlying demand has weakened, in part due to exports being hit by the stronger Euro. With companies’ future optimism having slipped to the lowest since last year, it looks likely that growth may well slow further in coming months.’

With growth outside of France and Germany having slowed to an eighteen-month low, the outlook for the Eurozone economy still looks softer than investors would like.

Concerns over the stronger Euro (EUR) are likely to give the European Central Bank (ECB) greater cause for caution in the month ahead, meaning the odds of a dovish April policy meeting have risen.

Weaker UK Government Borrowing May Dent Euro Pound (EUR/GBP) Exchange Rate

In spite of the more dovish nature of recent comments from Bank of England (BoE) Governor Mark Carney the Euro to Pound (EUR/GBP) exchange rate has seen only limited upside.

Although Carney talked down the prospect of a May interest rate hike last week this failed to diminish market bets on the idea of imminent monetary tightening.

Bets for a May rate hike could find additional support tomorrow if March’s UK public sector net borrowing figure proves encouraging, boosting the Pound (GBP) in turn.

A smaller level of government debt would bode well for the domestic outlook, suggesting that the economy is becoming less vulnerable to any deterioration in trade relations or the global market.

On the other hand, an uptick in borrowing could add to the case for the BoE to leave monetary policy on hold for longer, to the detriment of GBP exchange rates.

EUR/GBP Exchange Rate Forecast to Extend Gains on Weakening German Business Sentiment

The Euro to Pound (EUR/GBP) exchange rate may find further support on the back of April’s German IFO business sentiment surveys.

If signs continue to point towards a weakening of economic confidence within the Eurozone’s powerhouse economy the appeal of the Euro (EUR) is likely to diminish.

With the Eurozone losing some of the strong economic momentum seen in 2017, EUR exchange rates look vulnerable to additional downside pressure.

Particular focus will fall on the expectations index, with forecasts suggesting a modest dip in optimism pushing the index down from 100.1 to 99.5.

An upside surprise, however, could see the single currency rally strongly against its rivals.

Stronger US data may give the Euro to Pound (EUR/GBP) exchange rate a boost, though, as the policy divergence between the Federal Reserve and ECB looks set to widen further.