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Rebound in German PMIs Helps Rebound in Euro to Pound Sterling Exchange Rate


Euro to Pound Exchange Rate Rebounds from Monthly Lows on PMI Data

Today’s January PMI projections from Markit beat expectations in many key areas, and despite some signs of weakness this led to stronger demand for the Euro to Pound Sterling (EUR/GBP) exchange rate today.

Since opening this week at the level of 0.8521, EUR/GBP has been trending lower due to a broad recovery in the Pound (GBP). This morning, EUR/GBP touched on a low of 0.8402 – the pair’s worst level in over a month.

However, since touching that low EUR/GBP has seen a modest rebound. At the time of writing, EUR/GBP is trending a little higher in the region of 0.8433.,

The Euro (EUR) strengthened a little in reaction to German PMI results, while Pound (GBP) investors are hesitant to move too much on the British currency ahead of next week’s anticipated Bank of England (BoE) policy decision.

Euro (EUR) Exchange Rates Find Support as German PMIs Beat Forecasts

For much of the week, the Euro has seen mixed movement as investors speculated over how much the Eurozone economy could rebound from the poor performance seen last week.

Investors were a little disappointed by yesterday’s European Central Bank (ECB) policy decision.

While the bank’s decision was generally unsurprising, some investors had been hoping for a more optimistic tone from ECB President Christine Lagarde on the Eurozone’s economic recovery.

Due to market hopes for signs that the Eurozone economy is recovering, today’s Eurozone PMI projections from Markit gave the Euro some support.

While French services and overall Eurozone services were weaker than forecast, every German print beat forecasts.

German services came in at a strong 54.2, boosting Germany’s composite print to stronger than expected growth of 51.1. It had been forecast to be just above stagnation.

Germany’s latest manufacturing data was also less concerning that expected, coming in with a contraction of 45.2. According to Andrew Harder, Associate Director at IHS Markit:

‘Overall, a stable picture for both growth and inflation will likely reassure the European Central Bank that they are safe to keep monetary policy fixed for now while carrying out a strategy review.’

Pound (GBP) Exchange Rates Slip as Data Fails to Eliminate Bank of England Speculation

For much of this week, the Pound has been enjoying a strong surge in demand.

A combination of stronger than expected UK data, as well as hopes that Britain’s economy will rebound in 2020, both boosted the Pound. This was partially due to lightening Bank of England (BoE) interest rate cut speculation.

However, the Pound’s rally may have been overdone. Today’s UK PMI projections from Markit beat expectations, but not strongly enough to cause BoE interest rate cut bets to completely fate.

Uncertainty over the possibility that the bank could remain cautious on UK data, if rebound signs are not strong enough, weighed slightly on Sterling today.

According to Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, there is still little certainty of a strong rebound:

‘2020 has started on a positive note with this sudden change in momentum. However, that’s where the story will end until this uncorked trickle of new orders and activity turns into a flood for businesses hit by hesitancy in the last three years.’

Euro to Pound (EUR/GBP) Exchange Rate Doubles down on Bank of England (BoE) Focus

While this week’s Eurozone data and European Central Bank (ECB) news has caused some Euro movement, the Euro to Pound (EUR/GBP) exchange rate has been driven most considerably by Bank of England (BoE) speculation over the past week.

Today’s UK PMI data left uncertainty surrounding the tone the BoE could take on the subject of Britain’s economy. As a result, next week’s January policy decision from the BoE is likely to be a big focus for markets.

The BoE will hold its January policy decision on Thursday. If the bank continues to express caution over Britain’s economic outlook, the Pound could slump on speculation that the BoE could still cut rates in the coming months.

On the other hand, if the BoE notes that recent data has caused concerns to lighten, the Pound could be in for fresh gains.

Euro investors are more likely to react to upcoming Eurozone data.

German confidence data will be published on Monday and Wednesday, followed by German unemployment and inflation on Thursday. These stats could give investors a better idea of if Germany’s economic outlook is improving.

Overall Eurozone growth and inflation data will also be published at the end of next week, which has potential to cause notable Pound to Euro (GBP/EUR) exchange rate movement.