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EUR GBP Exchange Rate Tight after Gloomy BoE Forecasts

The Euro has traded tightly against the Pound following Thursday’s BoE policy meeting, which proved highly damaging for Sterling.

Policymakers rejected raising interest rates and downgraded their forecasts for the UK economy, which triggered a GBP EUR drop from a rate of 1.1189 to 1.1054.

Since then, the Euro has traded tightly against the Pound at a rate of 0.9029. This slip comes ahead of Eurozone-wide retail PMI figures.

(First published 10:46, August 3rd, 2017)

The Euro has dropped by -0.3% against the Pound today, following the news that overall Eurozone growth has slowed in July.

  • EUR GBP rate falls to 0.8942 – GBP EUR trades up at 1.1183
  • Euro traders unsettled by PMI stats – German economic growth slows in July
  • Pound advances on rising services score – Economists warn of potential losses in future
  • German industry figures out Friday – Will BoE officials give up rate hike support?

This recent slip leaves the Euro down against the Pound, but on a historic level the EUR GBP exchange rate is still near its best rate since November 2016.

Euro Slips after Disappointing PMI Results

Today’s Euro weakness has been caused by composite PMI figures for July. Measuring the overall levels of Eurozone growth, the composite measure has fallen from 56.3 points to 55.7. As well as indicating slowing growth, this was also lower than the anticipated 55.8 point result.

Summarising the PMI data, Markit Chief Economist Chris Williamson said;

‘Of the four largest Euro[zone] members, only Italy recorded faster growth in July, pushing the PMI into territory consistent with 0.5% quarterly GDP growth. Spain nevertheless continued to record the strongest overall expansion, with the PMI indicative of 0.9% growth.

The slowdown in Germany meant it registered the weakest increase in activity of the four largest Euro[zone] countries for the first time in over 12 years, though the ten-month low PMI reading still points to a 0.4- 0.5% GDP growth rate.

A loss of momentum in France also pushes the PMI down to a level broadly consistent with 0.4- 0.5% growth’.

Pound to Euro Rate Advances as UK Services Sector Grows

The Pound’s moderate advance against the Euro today comes after above-estimate figures for the UK services PMI. Showing the level of sector activity in July, the PMI has risen from 53.4 points to 53.8.

While a minor increase, this has still been supportive news as it exceeded trader expectations.

Also weighing in on this UK PMI, Markit’s Williamson said that;

‘While the current picture remains one of an economy showing overall resilience in the face of concerns about the outlook, the subdued level of business optimism suggests it’s likely that growth will at least remain modest and could easily weaken in coming months’.

Euro to Pound Forecast: EUR Rally possible on BoE Dovishness

The day’s key Eurozone news may be out now, but the main UK event is still upcoming.

This will be August’s Bank of England (BoE) interest rate decision, which is due at noon. On the crucial matter of interest rates, only two officials are expected to back higher rates.

This would be one less vote for an interest rate hike, compared to June. Such an outcome would be a step back on the path to a coveted interest rate hike, which could devalue the Pound.

Making his own prediction, former BoE official Adam Posen downplayed the chances of anything dramatic in today’s meeting. Posen said;

‘It is pretty clear the economy is slowing…it’s a credit-fuelled expansion and so it’s likely to come to an end soon. I think they are not going to vote for a rate hike at this time and probably not until at least November and maybe not even until 2018’.

Looking past this near-term news, Euro traders are primed for Friday’s German factory order and construction data releases.

Unfortunately for the Euro, factory orders are anticipated to fall while a reduction in construction sector activity is also on the cards. Both results could worsen the EUR GBP exchange rate going into the weekend.

Current Interbank EUR GBP Exchange Rates

At the time of writing, the Euro to Pound (EUR GBP) exchange rate was trading at 0.8941 and the Pound to Euro (GBP EUR) exchange rate was trading at 1.1183.