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GBP/EUR Exchange Rate Breaks Through 1.41, British Pound Forecast to Hold Gains on British Services Output

Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Hold Advance ahead of BoE Rate Decision

The Pound Sterling to Euro (GBP/EUR) exchange rate strengthened by around 0.6% on Wednesday afternoon.

In response to better-than-expected British Services output which saw October’s PMI hit 54.9, the Pound Sterling advanced versus its major peers. In conjunction with unexpected growth in manufacturing output and reasonably robust construction output, the services sector helped the UK Composite PMI eclipse expectations in October, rising to 55.4 from 53.3. The run of positive PMIs has seen improved optimism regarding the potential for a sooner-than-expected Bank of England (BoE) interest rate hike.

In response to the positive British services output, Chris Williamson, Chief Economist at Markit, stated; ‘A faster rate of expansion in service sector activity accompanied the steep upturn in manufacturing growth and robust construction sector growth reported earlier in the week. The survey data point to GDP rising at a quarterly rate of 0.6% at the start of the fourth quarter, up from 0.5% in the third quarter. Such an improvement, together with the revival in hiring signalled by the three surveys, with job creation hitting an eight-month high in October, may coax more policymakers into raising interest rates before the end of the year.’

The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.4141.

Euro to Pound Sterling (EUR/GBP) Conversion Rate Predicted to Hold Losses after Draghi Renewed ECB Easing Fears

Overnight, the single currency dived across the board following a dovish speech from European Central Bank (ECB) President Mario Draghi. After policymaker Ewald Nowotny warned against further ECB easing, optimism brewed that the Frankfurt-based central bank would avoid adding stimulus in December. However, those hopes were somewhat quashed after Draghi reiterated the bank’s readiness to take more accommodative action to combat the lack of Euro-area price pressures. ‘History shows that deflation can be just as damaging to the prosperity and stability of our economies as high inflation,’ Mr. Draghi said. ‘The Governing Council is willing and able to act by using all the instruments available within its mandate if warranted in order to maintain an appropriate degree of monetary accommodation,’ he added.

European economic data today has had minimal impact on the common currency with Draghi’s dovish sentiment overshadowing Euro-area Services and Composite PMIs. Both German and Eurozone Composite and Services PMIs came in lower-than-anticipated which is unlikely to provoke improved common currency sentiment.

The Pound Sterling to Euro (GBP/EUR) exchange rate dropped to a low of 1.4053 during Wednesday’s European session.

Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Fluctuate on US Data

Given EUR/USD negative correlation, today’s US ADP Employment Change and ISM Non-Manufacturing Composite have the potential to provoke Euro volatility and therefore Pound Sterling to Euro (GBP/EUR) conversion rate changes. Should US data print positively the single currency is likely to extend losses.

Tomorrow will be significant for the GBP/EUR pairing because of several ecostats from the BoE. On a day known as ‘Super Thursday’, the Bank of England benchmark interest rate decision will be accompanied by the immediate publication of meeting minutes and the quarterly inflation report. Whilst the central bank is not expected to move on rates at this time, the minutes and inflation outlook is likely to have a marked impact on Sterling movement.

The Pound Sterling to Euro (GBP/EUR) exchange rate climbed to a high of 1.4153 during Wednesday’s European session.