Homepage » News » EUR/GBP » GBP/EUR Exchange Rate Forecast: Pound Softens Despite Services Output

GBP/EUR Exchange Rate Forecast: Pound Softens Despite Services Output

Pound euro exchange rate

  • Improved UK Manufacturing PMI failed to boost Pound – Heightened ‘Brexit’ uncertainty weighed on Sterling sentiment
  • Euro strengthened by poor US data – Odds of imminent Fed rate hike declined on mixed manufacturing results
  • ECB policy meeting prompts modest GBP/EUR exchange rate volatility – ECB asserts further action could be taken
  • Weaker UK Construction has little impact – Pound unmoved by dip in output

Pound Sterling (GBP) Initially Strengthened By Upbeat Services Data

Ahead of Friday’s raft of UK and Eurozone Services PMIs the Pound Sterling to Euro (GBP/EUR) exchange rate was trending higher in the region of 1.2940.

Investors were anticipating a modest uptick in the UK measure, which would eliminate some of the concerns surrounding the outlook of the domestic economy thanks to the predominant role of the service sector.

As it transpired, the result was more impressive than expected. The index achieved 53.5 in May, taking the UK’s composite measure to 53.0.

The Pound continued trending higher against the Euro after the report was published, although gains were a little limited in light of ongoing EU referendum concerns.

A disappointing batch of retail sales figures for the Eurozone also kept the common currency under pressure.

However, as trading continued the Pound went on to reverse its initial gains and slide back to trading in the region of 1.28.

(Previously updated 17:01 02/06/16)

ECB Policy Meeting Leaves Pound Higher Vs. Euro

Although the European Central Bank took no action at this month’s policy meeting, the Pound Sterling to Euro (GBP/EUR) exchange rate was able to hold the 1.29 level and its previous 0.3% gain.

The central bank indicated that it would deploy additional stimulus if it proves necessary.

(Previously updated 12:30 02/06/2016)

UK Construction PMI Softens, GBP/EUR Still Advances to 1.29

The Pound Sterling to Euro (GBP/EUR) exchange rate held at the day’s opening levels of 1.2890 following the release of the UK’s construction PMI.

GBP was unmoved by the release despite the gauge dropping from 52.0 to 51.2.

However, as the ECB’s interest rate decision approached the Pound advanced by 0.3% to trend in the region of 1.2930.

Further movement is likely to occur before markets close for the weekend.

(Previously updated 08:30 02/06/2016)

Pound Sterling (GBP) Exchange Rate Slumped on Increased ‘Leave’ Poll Support

Despite a stronger-than-expected UK Manufacturing PMI the Pound (GBP) remained on bearish form throughout Wednesday’s European session. Markets were inclined to move away from the softening currency after the latest polls pointed towards greater support for the ‘Leave’ campaign, triggering a general return to ‘Brexit’-based uncertainty. While the PMI edged back across the neutral baseline of 50 to post mild growth of 50.1 in May this was not considered overly reassuring for the faltering UK economy. In particular the impact of the figure was muted by its limited implications for the wider GDP measure, with analysts at Lloyds Bank noting:

‘As the manufacturing sector accounts for only around 10% of UK economic activity, the UK’s near-term growth outlook hinges more crucially on developments in the dominant services sector where Friday’s PMI readings will provide an update. But the modest scale of the recovery in today’s manufacturing PMI still suggests that heightened political uncertainty continues to cast a shadow over UK economic prospects.’

A softer Nationwide House Price report also raised concerns over the outlook of the domestic economy, suggesting that downside pressure on the UK housing market was increasing. Although this might ease concerns over the possibility of a housing bubble developing the news was not received well, given the general slowdown trend of recent months.

Declining Fed Hike Bets Bolstered Euro (EUR) Exchange Rate

The Euro (EUR), meanwhile, benefitted strongly from the relative weakness of the US Dollar (USD), thanks to continued scepticism over the likelihood of an imminent Fed interest rate hike. US consumer confidence and manufacturing measures pointed to continued areas of softness within the world’s largest economy, boosting the appeal of the single currency thanks to its negative correlation with the ‘Greenback’.

Eurozone data proved a little more discouraging for investors on Wednesday as the latest raft of Manufacturing PMIs demonstrated further signs of slowness. While the finalised French figure was revised slightly higher and Germany posted a four-month high this was overshadowed by a general decline in growth in the manufacturing sector across the currency union. Greece continued to come under pressure, raising additional worries over the future of the Hellenic nation. However, as the OECD expressed some confidence in the outlook of the Eurozone economy this failed to particularly weigh on market sentiment.

GBP/EUR Exchange Rate Forecast: Euro Volatility Predicted with ECB Policy Decision

Confidence in the single currency may weaken somewhat on Thursday ahead of the European Central Bank’s (ECB) latest policy meeting. However, as markets largely anticipate that there will be no change in policy at this juncture any weakness in the Euro could prove fleeting. While ECB President Mario Draghi may attempt to talk down the currency and take a more dovish tone on monetary policy this may not ultimately convince investors. Consequently the Pound Sterling to Euro (GBP/EUR) exchange rate could remain on a weaker footing, in spite of Eurozone inflation concerns.

Demand for the Pound could be boosted by the latest UK Construction and Services PMIs, meanwhile, if these demonstrate further robustness within the domestic economy. Any additional signs of weakness, though, could dent confidence in Sterling further. ‘Brexit’ speculation is also likely to remain a major influence on the GBP/EUR exchange rate over the coming days, with markets expected to remain focused on the direction of polls.

Ahead of the release of the UK’s Construction PMI and the European Central Bank’s (ECB) interest rate decision, the Pound Sterling to Euro exchange rate was trending in the region of 1.28 – down significantly from last week’s highs of 1.32.