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GBP EUR Exchange Rate Hits New Weekly Highs after Manufacturing PMIs

  • GBP EUR Exchange Rate Above 1.08 – Pair recovers from 2017 lows of 1.07
  • UK Manufacturing PMI Beats Forecasts – Eurozone manufacturing mixed
  • GBP Forecast: Services Data Due Tuesday – Construction on Monday
  • EUR Forecast: European Central Bank Meeting Ahead – ECB meets next Friday

Updated 16:49 BST 01/09/2017:

The GBP EUR exchange rate jumped to a new weekly high before European markets closed on Friday evening, as investors sold the Euro.

GBP EUR reached a high of 1.0925, its best level in over a week.

While today’s UK manufacturing PMI beat expectations, the primary reason for Pound Euro strength was European Central Bank (ECB) uncertainties.

Economists now believe the ECB will discuss quantitative easing (QE) in September’s meeting but will not make any announcements until October’s meeting.

Many analysts speculate the ECB could take a cautious or dovish tone when announcing QE withdrawal, due to concerns that the Euro is overvalued.

[Published 10:31 BST 01/09/2017]

Thanks partially to stronger than expected UK data, the GBP EUR exchange rate looks to see its first week of gains in some time. Demand for the Euro has also weakened slightly as investors become more anxious about the upcoming European Central Bank (ECB) meeting.

Pound Euro opened at around 1.0803 on Monday. While the pair briefly touched on a 2017 low of 1.0745 on Tuesday, the Pound later recovered and GBP EUR looks to end the week close to the level of 1.0850.

Pound (GBP) Supported by Manufacturing PMI

Despite fresh Brexit concerns in recent sessions, the Pound has found support in stronger-than-expected UK ecostats over the last few days.

Perhaps most notable was Markit’s August manufacturing PMI for the UK, which was forecast to come in at 55 but instead jumped to 56.9. The previous figure was revised higher, from 55.1 to 55.3.

As manufacturing beat expectations by quite a bit, investors became more optimistic that the key services PMI print due next Tuesday would also impress.

However, the longer term Pound outlook was little-changed as analysts were uncertain as to whether the strength would continue. According to Rob Dobson, Director at IHS Markit;

‘There are increasing signs of supply-side issues leading to raw material and staff shortages, which could become a constraint on output growth going forward, while also leading to higher costs. However, at the moment, the survey data suggest that the manufacturing economy remains in good health despite Brexit uncertainty, and should help support on-going growth in the economy in the third quarter, which will add fuel to hawkish policymakers’ calls for higher interest rates.’

His comments indicate that if the manufacturing economy remains strong for the rest of the third quarter and beyond, it could give ammo to hawkish investors and Bank of England (BoE) policymakers hoping for tighter monetary policy.

The manufacturing report rounded off a relatively solid week for UK data. July’s mortgage approval and lending results beat expectations, as did July’s BoE consumer credit results. GfK’s August consumer confidence survey was better-than-expected too.

Euro (EUR) Demand Limited Despite Optimistic Data

Investors are hesitant to keep buying the strong Euro, as market jitters rise ahead of next Thursday’s highly anticipated European Central Bank (ECB) meeting.

Many economists predict that in the coming months, the ECB will discuss and announce a date for its quantitative easing (QE) program to begin being withdrawn.

However, some analysts and ECB policymakers have pointed to the Euro’s strength as being a potential obstacle to a more hawkish ECB.

As a result, with the upcoming ECB meeting taking stronger focus, the shared currency is seeing limited movement.

It has been unable to see a strong benefit from recent Eurozone ecostats, despite many key prints beating expectations.

The Eurozone’s August inflation projection came in at 1.5% year-on-year, beating forecasts of rising from 1.3% to 1.4%. However, the core inflation projection remained at 1.2%.

Eurozone manufacturing was mixed according to Markit’s final August PMIs. Italian manufacturing beat expectations, but Germany’s print fell short slightly.

Still, Germany’s manufacturing report was still a solid 59.3 and the overall Eurozone print came in at 57.4 as forecast.

Investors have had little reason to keep buying the strong Euro, but the past week’s data weighed on GBP EUR recovery attempts.

GBP EUR Exchange Rate Forecast: Services PMI in Focus

The Pound to Euro exchange rate is likely to close this week above its opening levels, for the first week of sustained gains since July.

However, the pair could easily drop again in the coming days as highly influential data and news will come in.

The next big dataset for GBP EUR exchange rate traders will be Markit’s UK services PMI for August, which comes in on Tuesday. The previous figure came in at 53.8.

As services make up a notable chunk of Britain’s economic activity, the report will give investors a better idea of how economic performance was in August.

After that data comes in, focus will switch to Euro trade as markets highly anticipate the European Central Bank (ECB) policy decision on the 7th of September.

If the ECB does indeed announce plans to withdraw its quantitative easing (QE) program as soon as next week, the Euro could see even stronger demand and push the GBP EUR exchange rate back towards 2017 lows.

GBP EUR Interbank Rate

At the time of writing this article, the GBP EUR exchange rate trended in the region of 1.0855. The Euro to Pound exchange rate traded at around 0.9210.