GBP/EUR Drops as US Fed Hike Rate Bets Plummet
- Pound (GBP) Bounces Back From Lows – Recovers slightly against majors despite poor PMI
- Euro (EUR) Left Limp on Dull Draghi – ECB echoes April’s uneventful policy meeting
- Update: Services and Composite UK PMIs – Better-than-forecast results support Sterling
- Update: Final May Eurozone PMIs Released – Services result above estimate
- Forecast: ‘Brexit’ Debates Rage on – Polls likely to drive GBP/EUR next week
The Pound to Euro exchange rate was down around -0.8% on Friday afternoon, extending the Pound’s weekly losses. GBP/EUR trended in the region of 1.2815 as the week’s trade drew to an end.
The primary reason for GBP/EUR’s Friday drop was a sudden shift in sentiment towards the US Dollar. The day’s change in Non-Farm Payroll report came in at a shockingly low 38k despite 160k being expected.
With labour data decidedly poor, bets that the Federal Reserve could hike the key US interest rate in June plummeted, as did the US Dollar.
Investors sold the US Dollar in favour of other relatively ‘safe’ currencies, like the Euro. As such, the Euro gained considerably against the Pound on Friday afternoon.
(Previously updated 14:08 03/06/16)
Pound Back to 1.28 Before the Weekend
After advancing earlier in the European session off the back of the UK’s better-than-forecast Services PMI report, the GBP/EUR exchange rate tumbled 0.4% as trading continued.
This took the GBP/EUR exchange rate back to 1.28.
With only relatively low-volatility UK data scheduled for release next week, EU Referendum related commentary is likely to continue being the driving force behind Pound Sterling movement.
(Previously updated 12:00 03/06/2016)
GBP/EUR Supported by UK Services PMI Result
The Pound Sterling to Euro (GBP/EUR) exchange rate consolidated earlier gains on Friday as the UK’s Services PMI impressed.
The gauge printed at 53.5 in May rather than the 52.5 forecast.
After the report was released GBP/EUR hit an initial high of 1.2953.
A disappointing retail sales report for the Eurozone also helped the British currency firm against the Euro.
(Previously updated 08:30 03/06/2016)
The Pound Sterling to Euro (GBP/EUR) exchange rate bounced back slightly from a two-week low during Thursday’s session as ‘Brexit’ bets settled, and dull Eurozone data left the Euro limp.
GBP/EUR plummeted to 1.2863 on Tuesday and Wednesday from a previous high of around 1.32, but recovered around 0.5% on Thursday to trend in the region of 1.2950.
Whether or not the Pound is able to return to last week’s best rates may depend on today’s UK Services PMI. A particularly impressive result may prove Sterling supportive.
Pound (GBP) Rebounds Despite Poor Construction Data
The Pound recovered against many majors, including the Euro, on Thursday despite poor data that would normally hold the currency down.
Markit’s May PMI of UK Construction revealed an unexpected slowing to 51.2, despite analysts expecting the figure to hold at 52.0. According to This Is Money, the report also indicated the first drop in new construction work in three years.
‘Firms saw new orders for homes, commercial buildings and civil engineering projects fall in May – the first contraction since April 2013, suggesting that construction is in for a ‘challenging’ second quarter.
The latest Markit/CIPS Construction PMI shows that the index for new work fell to 48.1 from 50.1, below the 50-mark that separates growth from contraction. Overall activity in the sector also fell to 51.2 in May, down from 52 in April, marking the weakest for almost three years.’
This disappointing score followed up Wednesday’s surprisingly positive Manufacturing PMI, which revealed that Britain’s manufacturing sector had unexpectedly escape contraction to score 50.1. It was expected to narrow from 49.4 to 49.6.
Sterling’s ‘Brexit’ pressure remains however, as bets that Britain could leave the EU later in June have reportedly increased from 17% to 26% according to Bookmakers.
Euro (EUR) Slumps after Uninspiring ECB Policy Meeting
The Euro traded relatively flatly on Thursday morning ahead of the European Central Bank’s (ECB) latest monetary policy decision, which some economists anticipated would indicate potential future movement from the bank.
Light data did little to move the Euro beforehand, as the shared currency remained solid despite poor producer price index scores which contracted -0.3% month-on-month and -4.4% year-on-year.
However, the Euro began to slump in response to the ECB’s highly anticipated announcements. Key rates were left frozen, with the interest rate at 0.00%, the deposit rate at -0.40%, marginal lending at 0.25% and asset purchase targets still at €80b.
While this was widely expected by economists, analysts and investors were disappointed with ECB President Mario Draghi’s press conference following the announcement. Draghi’s growth forecast adjustments were relatively small, and disappointed investors. Reuters reports;
‘The ECB nudged up its inflation forecast for 2016 but predicted price growth would remain below target through 2018.
It raised its 2016 inflation projection to 0.2 percent from 0.1 percent and kept its 2017 forecast at 1.3 percent. For 2018, the end of its forecast horizon, the ECB stuck to its prediction for an inflation rate of 1.6 percent – still short of its target close to but just below 2 percent.’
As a result, the Euro dipped slightly across the board, reflecting the market’s lack of confidence in the shared currency on Thursday.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Remaining May PMIs Due
Markit’s final May PMI scores for both the Eurozone and the United Kingdom are due to be released on Friday morning, and could see the Pound and Euro finding more solid ground if they print as expected.
As Britain’s most vital economic sector, the UK Services PMI is likely to influence Sterling movement if it prints well above or below expectations. Scores are currently expected to improve slightly from 52.3 to 52.5. The UK’s overall Composite score is forecast to gain from 51.9 to 52.3.
The Eurozone’s final PMI scores could prove to be comparatively light in terms of influence, as investors have already reacted to preliminary PMI scores released in May.
Regardless, the Eurozone’s Composite PMI report is expected to score 52.9, as was forecast in preliminary figures. Germany’s is likewise expected to remain at 54.7.
As the week’s trade session draws to an end, GBP/EUR is unlikely to experience further considerable shifts unless British PMI prints well above or below expectations.
‘Brexit’ debates will of course continue to have an effect on the increasingly volatile Pound however, and a strong view from a ‘Remain’ supporter could still result in a Sterling surge on Friday.