Pound Sterling to Euro (GBP/EUR) Exchange Rate Trends Lower ahead of BoE Policy Decision
Confidence has waned somewhat this morning in advance of the Bank of England’s (BoE) February policy meeting, pushing the Pound Sterling to Euro (GBP/EUR) exchange rate onto a downtrend. As policymakers are likely to take a more dovish approach, and the central bank’s inflation report is expected to strike a less confident tone, the Pound is expected to remain softer today.
The appeal of Pound Sterling (GBP) improved on Wednesday morning following a positive UK Services PMI, while the Euro (EUR) has slumped in response to disappointing Eurozone data.
Unexpectedly Improved Eurozone Unemployment Rate Shored up Euro (EUR) Exchange Rate
Confidence in the Euro (EUR) was boosted afresh yesterday as January’s German unemployment data bettered expectations, helping to push down the Eurozone’s Unemployment Rate from 10.5% to 10.4%. The number of unemployed within the Eurozone’s powerhouse economy fell by 20,000 at the start of 2016, eclipsing the forecast decrease of 8,000 and suggesting that the global slowdown pressures were not producing such a drag on domestic conditions as previously thought. As continuing market volatility fuelled increasing safe-haven demand the single currency went on a bullish run against rivals.
As a draft deal between Prime Minister David Cameron and the European Commission circulated, the possibility of a June referendum weighed on the Pound (GBP) with fresh rumbles of ‘Brexit’ concerns. Sterling was equally dented by the revelation that the UK Construction PMI had weakened further than forecast in January, falling from 57.8 to 55.0. This more disappointing performance did little to encourage traders to return to the Pound, although the more limited contribution of the construction industry to UK GDP allowed the Pound Sterling to Euro (GBP/EUR) exchange rate to begin retaking ground later in the afternoon.
UK Services PMI Betters Forecast to Boost Pound Sterling to Euro (GBP/EUR) Exchange Rate Today
The latest Eurozone Services PMIs proved more discouraging this morning, as Germany, Spain and Italy all saw growth slow in the first month of the year. Although the French service sector edged back into expansion territory, recovering some of the momentum lost in the wake of December’s terrorist attacks in Paris, this was not enough to reassure pundits. As this poorer showing seems to add weight to the prospect of the European Central Bank (ECB) opting for further monetary loosening in March, the common currency was quick to decline on the back of this data.
Conversely the Pound has been buoyed by a stronger-than-expected UK Services PMI, which clocked in at 55.6 rather than 55.3 to suggest that the domestic economy is growing at a faster pace than thought. Given that the service sector remains the primary driver behind the UK’s economic growth this prompted a surge in demand for Sterling and shored up the GBP/EUR exchange rate.
GBP/EUR Exchange Rate Forecast: BoE Dovishness Expected to Push Pound Lower
Tomorrow’s Eurozone Retail PMIs may offer a rallying point for the single currency, however, if retail within the currency union returns to a state of growth. The day’s greater source of movement for the GBP/EUR pairing will nevertheless be the Bank of England’s (BoE) rate decision and inflation report, as investors are keen to gauge the extent of policymakers’ dovishness. Should the Monetary Policy Committee (MPC) continue to iterate the likelihood of interest rates staying lower for longer the Pound is likely to return to a bearish trend.
Current GBP, EUR Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was making gains around 1.3237, while the Euro to Pound Sterling (EUR/GBP) pairing was trending lower in the region of 0.7553.