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Mixed UK PMIs Fail to Prevent Euro Pound Exchange Rate Rally

A sharp increase in the Spanish unemployment change headline figure failed to dent the Euro at the start of the week, even as market jitters over North Korea mounted once again.

Confidence in the single currency picked up in response to a relative softening of the US Dollar, which was unable to capitalise on the latest increase in safe-haven demand.

This allowed the Euro Pound exchange rate to regain some of its recent losses, even though forecasts for July’s Eurozone producer price index data were less than positive.

Further volatility is likely in store for EUR exchange rates this week as markets await the latest European Central Bank (ECB) policy meeting.

Investors are keen to get a fresh gauge of policymakers’ current outlook, even if the chances of any imminent action remain slim.

As analysts at Danske Bank noted:

‘The most important event this week is the ECB meeting. We do not expect any announcement on QE at this meeting, as the ECB has hinted that it needs more time to discuss it. Instead, the focus is likely to be on how big a problem the current pace of Euro appreciation is for the ECB.’

If President Mario Draghi issues a fresh warning over the relative strength of the Euro this could push the EUR GBP exchange rate further out of the region of its recent highs.

On the other hand, if markets perceive a less dovish message this may give the single currency another boost against its rivals.

Bullish UK Services PMI May Boost Pound Demand

Although August’s UK manufacturing PMI bettered expectations ahead of the weekend this failed to particularly shore up the Pound.

While this suggests that the domestic economy is experiencing something of a rebound in the third quarter the key point of focus remains the corresponding services PMI.

As the service sector accounts for more than three quarters of the UK’s economic activity a stronger showing here could give markets greater cause for confidence in the Pound.

On the other hand, if tomorrow’s services PMI disappoints this would leave Sterling vulnerable to a fresh surge of downside pressure.

Unless the economy displays solid signs of resilience investors are likely to see little particular reason to favour the Pound in the near term.

Given that today’s construction PMI fell short of forecast, easing from 51.9 to 51.1, expectations for the service sector data remain muted.

Jitters could also be in store for the EUR GBP exchange rate as MPs return from their summer recess and parliamentary discussions over Brexit resume.

Any signs that the Conservative government is softening its stance on the matter could encourage the Pound, although given the lack of progress seen at the third round of Brexit negotiations this appears an unlikely prospect.

Current EUR GBP Interbank Exchange Rates

At the time of writing, the Euro Pound exchange rate was making strong gains in the region of 0.9206. Meanwhile, the Pound Euro exchange rate was slumped around 1.0861.