EUR to GBP Exchange Rate Recovers as Eurozone PMI Projections Impress Investors

November 23, 2017 - Written by Minesh Chaudhari

STORY LINK EUR to GBP Exchange Rate Recovers as Eurozone PMI Projections Impress Investors

Strong PMI data from the Eurozone, as well as indications of policymaker disagreement within the European Central Bank (ECB) boosted the Euro to British Pound exchange rate on Thursday. Sterling remained weak due to expectations for subdued growth in Britain.

Despite this, the EUR/GBP exchange rate continues to trend below the week’s opening levels of 0.8923. The pair hit a low of 0.8846 on Tuesday but has since recovered to near the level of 0.89 again.

EUR Boosted by Strong Domestic Outlook

Eurozone data published in recent sessions has added to market sentiment that the Eurozone’s economic outlook is sturdy, and that the economy will begin 2018 with a strong growth trend.

Wednesday saw the publication of the Eurozone’s November consumer confidence projection, which was forecast to improve to -0.8. The figure instead jumped to a positive 0.1 figure, the first positive print since 2001.

Thursday followed with a round of surprisingly strong Eurozone PMI projections from Markit.

Markit’s German manufacturing PMI projection came in at an impressive 62.5 for November, well above the forecast 60.4. While the services PMI fell short, Germany’s composite figure is now projected to rise from 56.6 to 57.6 in November.

France’s PMI projections all beat expectations. Manufacturing improved to 57.5, services to 60.2 and the composite figure an impressive 60.1.

The Eurozone’s overall PMI projections beat expectations in every print too. Manufacturing came in at 60, with services at 56.2. The composite print was forecast to remain at 56, but instead climbed to 57.5.

Analysts noted that the figures were even better than even optimistic forecasters had expected. According to Esther Reichelt from Commerzbank;

‘There is a general trend of Euro-positive sentiment going through the markets and that is keeping the Euro firmly supported and the ECB minutes were along expected lines,’

The latest European Central Bank (ECB) meeting minutes report indicated that policymakers broadly agreed to extend the bank’s quantitative easing (QE) package, but some investors took note of divisions on the QE program’s end-date.

Some policymakers seemed more eager for the bank to announce a definite end-date for QE, with others arguing that the end-date should be left open.

This boosted the Euro slightly, amid hopes that the disagreement indicated that the QE scheme was not likely to be extended again after September 2018.

With the Eurozone’s economic outlook going from strength to strength recently, Euro investors have been largely overlooking political uncertainty in Germany and the currency has remained strong.

GBP Fails to Find Support in UK Growth Stats

Markets haven’t found the Pound particularly appealing since Wednesday’s UK Autumn Budget presentation.

While the Budget didn’t have a considerable impact on the already gloomy UK economic outlook, investors didn’t find the Office for Budget Responsibility’s (OBR) UK growth forecast cut to be entirely encouraging either.

The OBR announced that it was cutting its UK growth outlook to 1.5% for 2017, 1.4% for 2018 and just 1.3% for 2019.

Thursday’s UK growth projections from Q3 didn’t support Pound trade notably either. The quarterly figure did beat expectations slightly with a figure of 0.4%, but the yearly growth rate remained at 1.5% as expected.

Sterling was also weighed down by the Q3 business investment projections, which fell short of expectations in both prints. The quarterly figure slowed from 0.5% to 0.2%, while the yearly figure dropped from 2.5% to 1.3%.

EUR/GBP Forecast: German Growth Data Ahead

Eurozone data could continue to support the Euro in the coming sessions if notable ecostats impress investors.

Friday will see the publication of Ifo’s German business confidence results, while German and French consumer confidence data will be published early next week.

Perhaps the most influential Eurozone data due next week though will be November’s inflation projections from Germany, France and Spain.

If inflation in these key nations impresses, it could boost speculation that the European Central Bank (ECB) may not have to extend ultra-loose monetary policy much further.

Key job market data from Germany and the overall Eurozone will be published towards the end of next week.

Britain’s economic calendar will be relatively quiet in the coming week, but investors are likely to refocus on Brexit developments regardless as December approaches.

Signs that the Brexit process could see significant progress before the end of the year would likely lead to stronger demand for Sterling and this could push EUR/GBP lower.

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TAGS: Euro Pound Forecasts