Euro Continues Down as Retail Sector PMIs Dip Below 50
The Pound Sterling to Euro (GBP/EUR) exchange rate has extended its gains to 0.3%. The common currency has been further weakened by poor retail sector PMIs, which showed a contraction in both Germany and the Eurozone. The Retail PMI for Germany dipped from 52.4 to 49.6 while the Eurozone index dropped from 51.3 to 48.5.
European Central Bank (ECB) President Mario Draghi has disappointed investors by cutting deposit rates by less-than-expected. The stock market has reacted with a mass sell-off which saw share prices slump. With no data to lend Pound Sterling, it has nonetheless been able to advance on the back of Euro weakness.
GBP/EUR Exchange Rate Forecast: Pound Relies on Euro Weakness After Mixed UK PMIs
Pound Sterling has been kept weak by a succession of bad news, including the Bank of England’s (BoE) dovish inflation report, the threat of a housing bubble, the uncertain future of UK borrowing and mixed UK PMIs. While service sector growth – the main driving factor behind the UK economy – has continued to accelerate, manufacturing and construction have both slowed by more-than-expected.
While UK inflation currently remains low, Markit Chief Economist Chris Williamson believes that increasing wage growth has the potential to push inflation higher, stating: ‘For now, falling oil and energy costs are offsetting rising wage growth and keeping a lid on inflationary pressures, but the upturn in earnings growth raises question marks over just how long inflation, and therefore interest rates, will remain low for.’
The GBP/EUR exchange rate is currently trending in the region of 1.3897.
EUR/GBP Exchange Rate Trending Down after Spike Following ECB Interest Rate Decision
While investors had the chances of the ECB cutting the deposit rate by at least 10 basis points at 100%, the fact that the central bank chose not to push the rate much further into negative territory came as a surprise. As a result the weak Euro rallied with a dramatic charge against the major currencies, hitting a six-week high against Pound Sterling of 0.7245.
After yesterday’s significant gains, Euro momentum has slowed and the major currencies are now pushing back, with Pound Sterling rising 0.3%. The European stock markets have reacted to the news, with share prices tumbling. Investors were anticipating a much higher deposit rate cut than the 10 basis points delivered and an extension of quantitative easing by 12 months, rather than the six announced, as well as an increase in the size of assets purchased. The resulting sell-off saw the German DAX close -3.5% lower, while the London FTSE 100 lost over 2%.
Germany will be the only European country to sell debt in December, with a planned auction for €3 billion worth of bonds taking place on Wednesday. Italy was scheduled to hold an auction on Thursday, but has since cancelled.
The EUR/GBP exchange rate is currently trading around 0.7190 and 0.7236.
GBP/EUR Exchange Rate Forecast: Investor Focus on US Could Cause Further Euro Decline
With the ECB interest rate decision announced, traders are turning their attention to the week’s next big announcement: the US Non-Farm Payrolls, released later during today’s London session. The key employment data will help to strengthen or weaken the chances of an impending rate hike. While an interest rate hike has already been priced into Euro exchange rates, a strong performance in the NFP could see the US Dollar (USD) recover yesterday’s losses and soften EUR.
The GBP/EUR exchange rate is currently trending between 1.3808 and 1.3904.