The Pound-Euro rate could stay volatile around UK and Eurozone PMIs, with stronger services activity likely to support whichever side delivers the better data.
The Pound Euro (GBP/EUR) exchange rate was volatile last week, fluctuating between a 19-day high and a two-week low, as the Bank of England (BoE) interest rate decision rocked Sterling.
At the time of writing, GBP/EUR was trading at around €1.16598, virtually unchanged on the week.
Pound to Euro (GBP/EUR): 1.166203 (+0.20%)
Euro to Dollar (EUR/USD): 1.148572 (+0.09%)
DAILY RECAP:
The Pound (GBP) traded unevenly through the first half of last week, gaining against some weaker peers as markets looked ahead to key UK data and the BoE’s policy decision.
Tuesday’s UK jobs report showed unemployment holding steady rather than rising as forecast, although the figures still pointed to some underlying weakness in the labour market.
Sterling then softened on Wednesday as UK inflation figures offered little support. Headline inflation rose from 2.9% to 3.1% in August, while core inflation held at 2.6%, with both readings matching forecasts.
The Pound faced further pressure on Thursday after the BoE left interest rates unchanged. However, losses were limited by the decision to slow the pace of bond sales, which pushed UK borrowing costs lower.
The Pound regained some ground on Friday as UK retail sales beat expectations, rising 0.5% in August after falling 0.2% in July. Markets had forecast a further 0.5% decline.
The Euro (EUR) came under pressure on Monday due to its strong negative correlation with the US Dollar (USD), as the latter currency strengthened.
Germany’s latest ZEW sentiment index offered little encouragement on Tuesday. Although sentiment improved for a fifth consecutive month to its highest level since February, the increase fell short of forecasts.
The Euro wavered on Wednesday after Eurozone industrial production fell 0.1% in July. However, the decline was smaller than the 0.2% contraction expected.
The US Dollar’s continued strength kept pressure on the Euro on Thursday, while a slight downward revision to August’s finalised inflation figures also dampened sentiment. However, EUR was able to jump against GBP.
The Euro then gave back its gains on Friday as markets assessed comments from European Central Bank (ECB) President Christine Lagarde, who said the bank had yet to see any second-round effects from inflation and would continue setting rates on a meeting-by-meeting basis.
Near-Term GBP/EUR Forecast: PMIs Take Centre Stage
Looking ahead, the Pound could come under pressure on Tuesday when the UK’s latest borrowing figures are released. A sharp rise in borrowing during August could reignite concerns over the UK’s fiscal position ahead of the Autumn Budget.
Wednesday will bring the UK’s preliminary September PMIs. If the figures point to another month of solid activity, particularly across the vital services sector, Sterling could find some support.
The Eurozone PMI releases are also due out on Wednesday. Similarly to the Pound, an improvement in activity in the bloc could underpin the single currency.
Before then, however, the Euro could face pressure. The Eurozone’s latest consumer confidence index, due out Tuesday, is forecast to show a deterioration in morale.
