- GBP EUR Exchange Rate Recovers to 1.1850 on UK Construction – Construction still contracts in July
- Euro Boosted Slightly by Producer Prices – Fastest rise in producer prices in almost four years
- Update: PMIs Decorate Wednesday Session – Services and composite PMIs down for UK
- Update: Bank of England Meeting – Sterling plummets after ‘Super Thursday’
- Forecast: Sterling to Remain Pressured? – Could the Pound recover from this loss?
GBP EUR Exchange Rate Plummets on BoE Stimulus
The Bank of England (BoE) surprised markets on Thursday by introducing a more-aggressive-than-expected easing package to assist the UK’s post-Brexit economy. This included an interest rate cut from 0.50% to a new record low of 0.25%, and other quantitative easing measures.
As a result of the news, Sterling quickly plummeted across the board and gave up many of its weekly gains in mere moments.
With the bank indicating that more cuts could be on the way, as well as dire forecasts for growth and unemployment, the Pound’s chances of recovery may be muted.
However, it is not uncommon for the Pound to rebound slightly from a sharp drop as investors purchase it from its lows. As a result, investors may bring the currency slightly higher on Friday amid a quiet economic calendar.
(Previously updated 17:00 03/08/2016)
GBP EUR Exchange Rate Could Shed Gains on Thursday
While the Pound to Euro exchange rate continued its rally attempts on Wednesday, a heavily pressured Sterling is highly likely to fall on Thursday if the Bank of England (BoE) finally introduces that widely-speculated interest rate cut.
Markets currently expect that the BoE will cut UK rates from 0.50% to 0.25%, and other stimulus measures such as renewed quantitative easing are also widely speculated.
Analysts believe that recent UK data is ample evidence that the bank’s officials need to justify a rate cut. However, the BoE is sometimes known for defying expectations (as in July).
If rates are left frozen, GBP/EUR could soar past 1.20. On the other hand, if the bank introduces a bigger economic stimulus package than expected, GBP/EUR will plummet. The Euro will also have firm footing on Wednesday’s final July PMIs, which indicated that the Eurozone’s economy had actually outperformed June’s performance despite Brexit worries.
(Previously updated 10:06 03/08/2016)
UK Services PMI Meets Forecasts, Pound Euro Exchange Rate Firms
The Pound Euro exchange rate edged slightly higher as the European session continued on Tuesday and the UK’s Services PMI printed as forecast.
There had been concerns that the gauge would print even further below the 50 mark separating growth from contraction than predicted, but the result of 47.4 matched initial estimates.
After the report was published the GBP EUR exchange rate was left trending in the region of 1.1922.
(Previously updated 08:00 03/08/2016)
The GBP EUR exchange rate forecast remains neutral/negative despite the Pound Euro pairing staging a surprising recovery on Tuesday as UK Construction PMI outperformed its bearish forecasts. The final UK PMIs due for release today may have an impact on the tone adopted in tomorrow’s hotly anticipated Bank of England (BoE) policy decision.
After sinking to a three-week-low of 1.1783 on Tuesday morning before the construction figures were published, GBP/EUR gained over half a cent in the afternoon. The pair was trending just above the key level of 1.1850 on Tuesday afternoon.
As the UK’s Services Sector accounts for over 70% of total GDP, a better-than-forecast result from this PMI could give Sterling a modest boost ahead of the BoE rate announcement.
Pound Sterling (GBP) Slightly Relieved as Construction Avoids Bearish Projection
After Monday’s shockingly poor July UK manufacturing report, investors reacted by selling the Pound and adjusting their projections lower for other upcoming UK ecostats.
This included Tuesday’s July Construction PMI from Markit and CIPS. Bearish markets had projected that June’s contraction of 46.0 would be followed up by a much worse contraction of 44.0 in July due to the Brexit vote.
However, markets were relieved when the score came in at 45.9. While this figure marked the biggest contraction in UK construction since the global financial crisis, some investors were relieved that that the result wasn’t even worse.
According to Bloomberg, some investors also bought into the Pound due to speculation that the Bank of England’s (BoE) expected stimulus package may not be as aggressive as some expect;
‘The Pound advanced before the Bank of England on Thursday delivers its second post-Brexit interest-rate decision, as some investors see a risk of policy makers underwhelming a market that’s pricing in the near certainty of a rate reduction.
Sterling rose even as a report Tuesday showed UK construction contracted the most in July since the financial crisis. With swaps prices indicating a 98 percent chance of a cut Aug. 4 and speculative investors being the most bearish on the pound in records going back to 1992, sterling is seen as subject to policy disappointments.’
Regardless, Sterling’s advances were limited as markets remained anxious ahead of this week’s key economic events in Britain.
Euro (EUR) Mixed Despite Solid Eurozone Data
The Euro has been strengthening over the last week, with recent data continuing to indicate that the Eurozone has been resilient in recent months despite slow growth and concerns towards the Brexit and other incidents of rising Euroscepticism.
Monday’s data was largely optimistic. While growth in the Eurozone’s manufacturing sector slowed from June, it avoided contraction and was able to perform better post-Brexit than many were expecting.
While worse-than-expected Italian manufacturing weighed on the single currency, German and Eurozone figures boosted the Euro’s appeal with their better-than-forecast results.
Tuesday followed up with better-than-expected producer price scores. While these scores were from June and thus would not indicate how producer prices had fared since the Brexit (we’ll see those next month) the figures nonetheless came in above expectations.
According to The Wall Street Journal, June’s Producer Price Index of 0.7% marked the fastest rise of PPI in almost four years;
‘The increase in producer prices suggests that the Eurozone is poised for a sustained move out of deflation. Figures released Friday showed consumer prices rose 0.2% year-over-year in July, having been below their year-earlier levels as recently as May.
The pickup in producer prices will be welcome news for policy makers at the ECB, who are no closer to meeting their inflation target of just under 2% than they were when launching the first of a series of stimulus packages in June 2014.’
Despite this falling shares of Eurozone banks as well a doubt that solid producer prices will lead to long-term inflation rises weighed on the Euro on Tuesday.
GBP EUR Exchange Rate Forecast: Services and Composite PMIs Today
While preliminary PMI scores are typically more influential to exchange rate movement than finalised scores are, this is because preliminary scores are usually close enough to the real thing – making the finalised scores typically less shocking.
However, knowing that July was the first full month in the aftermath of Britain’s vote to leave the European Union, markets are certainly anxious to see the finalised results of how Brexit news has affected the British and Eurozone economies.
Monday and Tuesday’s already coming in well above or below expectations have already indicated how key these figures are. Wednesday’s PMIs have the potential to be the most influential of the bunch if they fail to match preliminary figures.
UK Services are expected to come in at 47.4, with Composite at 47.7. If the final print is lower than these preliminary figures the Pound will likely plummet ahead of ‘Super Thursday’. This will be especially likely if the Eurozone’s Services and Composite scores beat expectations.
As for ‘Super Thursday’ itself, the Bank of England’s (BoE) expected slew of monetary policy decisions will be announced on Thursday.
Regardless of whether or not the bank acts or not – or introduces a big or small stimulus package – Thursday is certain to be the biggest event for this week’s GBP EUR exchange rate forecast.