Pound-Euro could recover if stronger UK services data supports Sterling, although rising borrowing costs and firmer ECB rate expectations remain key risks.
The Pound Euro (GBP/EUR) exchange rate fell to a near two-week low on Wednesday as UK government bond yields rose to a 19-year high.
At the time of writing, GBP/EUR was trading at €1.1648, its lowest level in 13 days.
DAILY RECAP:
The Pound (GBP) was subdued on Wednesday as a lack of UK economic data left Sterling without much support.
Concerns about rising government borrowing costs saw GBP struggle against some of its stronger peers. British gilt yields rose again on Wednesday, hitting their highest level since August 2007.
This raised concerns about how higher borrowing costs could constrain the UK economy and prompt tighter fiscal policy from the British government.
Meanwhile, the safer Euro (EUR) attracted some support against the increasingly risk-sensitive Pound amid a risk-off market mood.
However, the common currency’s upside potential was limited by a lack of Eurozone economic data and geopolitical concerns.
EU politicians were preparing a response after Germany formally attributed the drone attack on Leipzig airport last month to Russia, stoking fears about rising tensions between Brussels and Moscow.
Near-Term GBP/EUR Forecast: PMIs to Support the Pound?
Looking forward, the final Eurozone and UK services PMIs are due out on Thursday morning, potentially impacting the Pound to Euro exchange rate.
If the data confirms that activity in the British service sector accelerated in August, Sterling could enjoy support.
The Eurozone’s latest producer price index could also affect the pairing. A surge in producer price inflation in July could boost the Euro, if it fuels consumer price inflation expectations and leads to an uptick in European Central Bank (ECB) interest rate hike expectations.
Our currency coverage draws on live market data, official economic releases and published bank research.
