GBP to EUR Exchange Rate Edges Higher as UK Manufacturing Beats Expectations

August 1, 2017 - Written by Tim Boyer

STORY LINK GBP to EUR Exchange Rate Edges Higher as UK Manufacturing Beats Expectations

Sterling has benefitted from domestic data this week more than the Euro and investors have continued to buy the British Pound to Euro exchange rate up from its recent lows. Britain’s July manufacturing PMI beat expectations today.

After a brief dip to a low of 1.1145 on Monday evening, GBP/EUR recovered to above the week’s opening levels. At the time of writing the pair trended in the region of 1.1180 and lacked the demand to break 1.12.

GBP Gains on Stronger than Expected Manufacturing Data

Investors finally had a fresh reason to buy the undervalued Pound on Tuesday, as Markit’s July manufacturing PMI came in better-than-expected.

Manufacturing was forecast to improve slightly from 54.3 to 54.4, but instead jumped from a revised 54.2 to 55.1.

Analysts and markets were encouraged by the report following a drop in manufacturing in June. Many analysts believed it indicated that Britain’s manufacturing private sector could make a notable contribution to Gross Domestic Product (GDP) in the third quarter. Lee Hopley, EEF Chief Economist, stated;

‘UK manufacturers appear to be riding high going into the second half of the year with the sector in the UK and Europe continuing to be buoyed by a recovering global economy, alongside efforts to bring new products to the market.

Above trend responses across the key components of the survey would signal that the drag on overall economic growth from the sector in the second quarter of this year is likely to be temporary.’

While some analysts have noted that the official figures from the Office for National Statistics (ONS) were lower than Markit’s figures in Q2, the better-than-expected manufacturing data was still enough to boost Sterling.

Nationwide’s July housing prices report supported the Pound too, as it beat expectations in both monthly and yearly prints with results of 0.3% and 2.9% respectively.

EUR Holds Ground as Analysts Optimistic on Eurozone Growth

The shared currency faces psychological resistance this week as investors will be waiting for clearer forward guidance from the European Central Bank (ECB) before driving the Euro higher.

However, recent Eurozone data has been solid and has helped the Euro to hold its ground, limiting GBP/EUR recovery.

Tuesday saw the publication of the Eurozone’s Q2 Gross Domestic Product (GDP) projections, which met forecasts. Eurozone growth looks to come in at 0.6% quarter-on-quarter and improve from 1.9% to 2.1% year-on-year.

While the Q1 quarterly growth stat was revised lower to 0.5%, analysts and markets were overall optimistic about the growth report. Some analysts predict Q2 growth could be revised even higher if German growth impresses. Jack Allen from Capital Economics argued;

‘German Q2 GDP has not yet been published, and the Eurozone aggregate has been produced using an estimate for Germany.

Given that the monthly data in Germany point to a very sharp acceleration in growth there, to as much as 1%, the Eurozone aggregate may yet be revised up. And the timelier surveys point to continued strong growth at the start of Q3.’

However, the Eurozone’s Tuesday strength was limited by Markit’s final July manufacturing PMI, which was projected to drop from 57.4 to 56.8 but instead dropped to 56.6.

GBP/EUR Forecast: Thursday’s Major Session to Influence Pound and Euro

While Pound exchange rates could be influenced by Markit’s UK construction PMI on Wednesday, investors are likely to wait until Thursday’s key session before they make any new major moves on the Pound to Euro exchange rate.

Thursday will see a slew of influential ecostats published and the Bank of England (BoE) will hold its August monetary policy decision.

Investors will react to the hawkishness of BoE policymakers during this week’s decision, particularly how many members of the Monetary Policy Committee (MPC) vote to hike rates or leave rates frozen.

If rates are kept frozen by a bigger majority than in the previous meeting, GBP/EUR could shed some ground later in the week.

In terms of data, Markit will publish its final July services PMIs for Britain and the Eurozone on Thursday too. Eurozone retail sales stats from June will also be published.

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TAGS: Pound Euro Forecasts