Euro to Pound Outlook - Exchange Rate Risk Aversion Dominates EUR GBP Movement

Modified: Saturday, 9 August 2014 21:48 BST - Written by Tim Boyer

STORY LINK Euro to Pound Outlook - Exchange Rate Risk Aversion Dominates EUR GBP Movement

Currency News UK - Euro to Pound Exchange Rate Outlook: The Pound Sterling (GBP) began the week firmer against the US Dollar (USD) and Euro (EUR) as investors were pleased with solid UK construction data. The UK’s construction Purchasing Managers Index slowed slightly to 62.4 last month, better than the reading for 62.0 expected by economists. Despite the slowdown, the pace of growth in the sector remained at its fastest since 2007. As Tuesday’s session began, Sterling eased ahead of the release of the latest UK Markit Services PMI.

The Euro meanwhile started the week little moved against the Pound and holding near to an eight-month low against the US Dollar as investors looked ahead to the European Central Bank’s monetary policy meeting which was held on Thursday.

On Tuesday, Sterling softened against the US Dollar and other peers after the US currency found support from the release of strong service sector and ISM data. Earlier in Tuesday’s session the Pound had made gains of its own after data showed that the UK’s dominant service sector bustled with activity last month. Markit Economics reported that its Markit/CIPS Services Purchasing Managers Index rose to 59.1 in July from 57.7 in June, beating expectations for a 57.9 reading.

The Euro slumped to its lowest level in nine-months against the US Dollar as traders increased their bets that the currency would fall further ahead of Thursday’s European Central Bank policy meeting. Weaker than forecast data out of Italy weighed upon the currency on Tuesday as did the Eurozone service PMI data, which came in below forecasts. Concerns over a build-up of Russian troops on the Ukrainian border caused investors to favour safe haven assets.

The Pound weakened further against the US Dollar on Wednesday following the release of softer-than-forecast Manufacturing and Industrial Production data. Also weighing on the currency was a report, which showed that Store Prices dropped by an annual rate of 1.9%, the largest decline recorded since 2006. The disappointing data caused investors to rethink their estimates as to when the Bank of England will choose to tighten monetary policy. The Bank of England was due to publish its latest interest rate and monetary policy decision later in the session; economists were widely forecasting that no changes would be made.

The Euro slumped to a fresh nine-month low against the US Dollar after data out of Italy confirmed that the Eurozone’s third largest economy fell back into recession. Ahead of the day’s European Central Bank policy meeting the Euro was holding ground against the Pound and other major peers as investors took a wait and see stance as to whether policy makers would announce new measures to aid the Eurozone’s flagging recovery.

The Pound fell sharply against the Euro and the majority of other major peers on Friday as concerns over the possible breakup of the United Kingdom weighed heavily. According to the National Institute of Economic and Social Research, Scotland should create its own currency if the Scottish people vote for independence. Also weighing on the currency were geopolitical concerns caused after US President Barrack Obama authorized airstrikes against Islamist Jihadists who have conquered large swathes of the Middle East.

The Euro remained at a nine-month low against the US Dollar after European Central Bank President Mario Draghi signalled that the Eurozone’s monetary policy would diverge from the USA for an extended period. The single currency was also weighed upon by another day of disappointing data releases and heightened concerns over possible Russian military intervention in Ukraine.

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