Pound Sterling to Euro (GBP/EUR) Exchange Rate Holds at 1.3249
It was a similar story to Monday for the Pound Sterling to Euro (GBP/EUR) exchange rate as European trading progressed on Tuesday.
While UK data surpassed expectations, the Pound failed to clock any gains against the Euro.
This time it was the UK’s Construction PMI outperforming expectations.
The measure had been expected to slip to 57.0 in January from 57.6 in December, but it actually jumped to 59.1.
Even a worse-than-anticipated Producer Price Index for the Eurozone didn’t help the Pound Sterling to Euro (GBP/EUR) exchange rate gain.
GBP/EUR Exchange Rate Struggles Before BoE Decision
As the European session progressed on Monday, the GBP/EUR pairing gave up all of its earlier gains to trade around 0.6% lower than the day’s opening levels.
Bets that the Bank of England (BoE) will leave interest rates at record lows for the rest of this year weighed on the Pound and will continue to do so in the lead up to this week’s central bank interest rate decision.
That being said, if this week’s UK Services and Construction PMI come in higher than expected (as the manufacturing report did) Sterling could be lent some support.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading in the region of 1.3247.
GBP/EUR Exchange Rate Pares Decline
The Pound Sterling to Euro (GBP/EUR) exchange rate began the European session trading around 0.5% lower as comments relating to the importance of Greece remaining within the Eurozone lent the common currency support.
However, after the UK’s Manufacturing PMI came in above expected levels, the Pound managed to recoup much of its losses.
The gauge of manufacturing advanced from 52.5 to 53.0 in January.
A more moderate increase to 52.7 had been expected.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading in the region of 1.3304
The Pound Sterling to Euro (GBP/EUR) exchange rate moved between highs of 1.34 and lows of 1.32 over the course of last week. With influential UK data ahead, could the pairing achieve a fresh 7-year high?
Pound Sterling to Euro (GBP/EUR) Exchange Rate Drops from 1.34 on Profit-Taking
Syriza’s Greek election victory, coupled with the lingering impact of the European Central Bank’s (ECB) proposed quantitative easing scheme, saw the Pound Sterling to Euro (GBP/EUR) exchange rate begin the week trading in the region of 1.34 – the highest level since 2008.
However, bets that the recent drop off in the Euro was excessive, calming ‘Grexit’ concerns and profit-taking all helped the common currency recoup losses against Sterling over the course of the week.
The Euro also derived support from improved German IFO Business Confidence figures and a solid GfK Consumer Confidence reading for the Eurozone’s largest economy.
The data showed that the Swiss National Bank’s (SNB) recent scrapping of its peg with the Euro and the European Central Bank’s (ECB) introduction of quantitative easing hasn’t had a negative impact on consumer and corporate sentiment.
Demand for the Pound, meanwhile, was undermined by the UK’s below-forecast growth data for the fourth quarter of 2014.
The slower-than-expected pace of fourth-quarter expansion backed the case for the Bank of England (BoE) leaving interest rates on hold until next year and the Pound dropped below the key 1.50 support level against the US Dollar.
Economist Lee Hopley noted; ‘The UK has an enviable performance compared with most other developed economies, but there was some notable weakening, not least in parts of manufacturing, through the second half of 2014.’
Although Consumer Price Inflation for the Eurozone and Germany was shown to have decelerated more rapidly than projected in January, the Euro was able to hold its own against its British rival.
While the disinflationary trend is concerning, the ECB has already deployed the best policy weapon in its arsenal and isn’t likely to take further action off the back of these figures. Consequently, inflation reports are unlikely to have the significant impact on the Euro they did prior to the last ECB announcement.
Slowing UK house price growth and reported sales also saw the GBP/EUR exchange rate dip on Thursday, but the Pound was able to recoup losses on Friday following the release of an encouraging UK Consumer Confidence index.
The GfK gauge advanced from -4 to 1 in January.
However, any Pound gains were limited against a backdrop of UK political uncertainty. As stated by strategist Marshall Gittler; ‘Even though the economic data in the UK points to growth, investors are wary because there is political uncertainty on the horizon’.
The rate of unemployment in the Eurozone also eased unexpectedly, drifting from 11.5% to 11.4%.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Hit New Highs?
In the week ahead movement in the Pound Sterling to Euro (GBP/EUR) exchange rate could be caused by a number of influential economic reports for both the UK and Eurozone.
That being said, the Markit Manufacturing, Services and Composite PMI’s for the UK may inspire the most GBP/EUR movement.
These gauges softened in December, adding to concerns regarding the UK’s slowing economic output.
Should the measures rebound in January, and push further above the 50 mark separating growth from contraction, they would bring forward BoE rate hike expectations and could drive the Pound Sterling to Euro (GBP/EUR) exchange rate back above the 1.34 level.
A services PMI reading of above 55.8 will be Pound supportive.
The BoE’s latest interest rate decision will be of interest despite the fact that the central bank is expected to leave policy unaltered.
Any progress in the Greek bailout negotiations could also cause GBP/EUR movement. Recent reports indicate that Greece is hoping the ECB will cooperate with the nation until the new government has finalized the terms of its bailout package. A deadline of the end of May has been set for the negotiations to be concluded.
Finance Minister Yanis Varoufakis stated; ‘For that period, we’re not going to ask for any more loans. During this period, it is perfectly possible in conjunction with the ECB to establish the liquidity provisions that are necessary.’
On Friday the Pound Sterling to US Dollar (GBP/USD) exchange rate was trading in the region of 1.5062.
The US Dollar to Pound Sterling (USD/GBP) exchange rate was trading in the region of 0.6636.
At the close of the week the Pound Sterling to Euro (GBP/EUR) exchange rate was trading in the region of 1.3300.
The Euro to Pound Sterling (EUR/GBP) exchange rate was trading in the region of 0.7518.