Lowered Eurozone Manufacturing PMIs Spurred Euro (EUR) on Downtrend with Increased Prospect of ECB Monetary Loosening
Following up the concerns raised by Wednesday’s Eurozone Consumer Price Index which revealed a return to negative inflation for the currency union, the raft of domestic Manufacturing PMI figures proved equally disappointing. Manufacturing output in Germany, Spain and Italy printed below forecast to suggest a further slowing of the local economy. While France did produce a more optimistic result by edging over the index’s neutral baseline of 50 to return to a state of expansion, this was not sufficient to encourage trader optimism. Speculation continued to increase over the possibility of the European Central Bank (ECB) being forced to introduce fresh monetary loosening measures in order to stimulate the domestic economy. In consequence, the EUR/GBP conversion rate continued to slump, falling to a daily low of 0.7360.
Also yesterday, the UK Manufacturing PMI figure printed above expectations at 51.5 instead of 51.3 to indicate that the impact of the global slowdown has been less marked than feared. Although this still showed that growth in the sector declined on the month, sentiment towards the Pound (GBP) remained positive.
Common Currency (EUR) Rebounded with Hawkish ECB Commentary, Sterling (GBP) Extends Gains on Rising UK Construction Output
However, the single currency achieved a (limited) rally overnight thanks to comments from European Central Bank (ECB) President Mario Draghi. Demonstrating decided confidence in the current monetary policy of the central bank and the general resilience of the Eurozone economy, Draghi’s words naturally spurred an upturn in demand for the Euro. After rising to an inter-day peak of 0.73989, however, the EUR/GBP currency pair soon returned to a decline as pundits remained sceptical.
Provoking further volatility for the EUR/GBP exchange rate this morning, the UK Construction PMI substantially bettered estimates to clock in at a strong seven-month high of 59.9. As this offered decidedly greater reassurance to investors of the UK’s economic health, Sterling returned to a bullish run and continued to extend gains against the majority of its rivals.
EUR/GBP Exchange Rate Forecast: Pound May Remain Dominant with Positive UK Services PMI
This Pound uptrend could be brought to an end should Monday’s UK Services PMI fail to print positively, given that the service sector is the largest contributor to the domestic GDP. Another strong showing, however, would undoubtedly see the EUR/GBP conversion rate continue to shed value in the face of a buoyant Sterling.
Upcoming for the Eurozone after the weekend will be the Sentix Investor Confidence Index for October and the August Retail Sales figure for the currency bloc. Should these offer further disappointment then bets are likely to continue on the odds of an ECB monetary invention and substantially undermine the confidence shown by Draghi.
Current EUR, GBP Exchange Rates
At the time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was slumped in the range of 0.7364, while the Pound Sterling to Euro (GBP/EUR) pairing was rising in the region of 1.3579.