EUR to GBP Exchange Rate Sees Modest Losses as Eurozone PMIs Fail to Impress Investors

April 23, 2018 - Written by Ben Hughes

STORY LINK EUR to GBP Exchange Rate Sees Modest Losses as Eurozone PMIs Fail to Impress Investors

Despite some better-than-expected Eurozone PMI projections on Monday, the Euro to British Pound (EUR/GBP) exchange rate slipped slightly from the week’s opening levels during Monday trade. Some analysts still believe a May interest rate hike from the Bank of England (BoE) is possible which has kept Sterling buoyed.

Last week saw EUR/GBP put in one of its best weekly gains in months – largely due to Pound weakness. EUR/GBP opened the week at the level of 0.8664 and gained over one pence to end the week at the level of 0.8776. At the time of writing, EUR/GBP continued to trend closely to the week’s opening levels.

EUR Demand Limited despite Stronger than Forecast Eurozone PMIs

Monday’s economic data from the Eurozone was largely optimistic, at least in terms of overall figures, but this did little to make the Euro more appealing.

Germany’s April manufacturing PMI is now projected to come in at 58.1, just slightly down from the previous figure of 58.2 and above the forecast 57.5.

Most of France’s PMI projections beat expectations too and the Eurozone’s overall composite PMI remained at a sturdy 55.2 rather than sliding to the forecast 54.9.

The shared currency had seen significant gains against Sterling last week despite a lack of European Central Bank (ECB) bullishness in markets.

As the latest Eurozone data did nothing to make investors more hopeful about the chances of an ECB interest rate hike any time soon, the Euro did not notably benefit from the results.

In fact, some analysts remained concerned that while France and Germany have seen strong performance in April, smaller Eurozone nations are seeing slowdown due to the stronger Euro currency.

IHS Markit’s chief economist, Chris Williamson, had this to say about the PMI report:

‘However, it’s also clear that underlying demand has weakened, in part due to exports being hit by the stronger Euro. With companies’ future optimism having slipped to the lowest since last year, it looks likely that growth may well slow further in coming months.’

Amid warnings that the Euro may be too strong and ECB interest rate hike bets still stagnant, investors have little reason to buy the Euro higher.

GBP Edges Away from Lows on Analyst Speculation of BoE Rate Hikes

Despite last week’s UK inflation data disappointing and Bank of England (BoE) Governor Mark Carney making fresh comments perceived as dovish, some analysts believe the BoE could still hike UK interest rates again as soon as May.

The Pound saw broad losses last week as Bank of England (BoE) interest rate hike bets fell. On Monday, Sterling recovered slightly from its worst levels as some analysts remained optimistic.

Forecasting group, the EY Item Club, predicts that the BoE will still hike UK interest rates twice in 2018 and another two times in 2019.

Still, other analysts noted that the limited recovery attempts seen by Sterling on Monday were nothing like the strong gains the currency showed earlier in April. According to Connor Campbell from SpreadEx:

‘After being dragged lower by a disappointing wage growth/inflation/retail sales data hat-trick, and subsequent dovishness from Bank of England chief Mark Carney, the currency was unable to regain any of its first half of April momentum in Monday’s early moments,’

EUR/GBP Forecast: Central Bank Speculation to Drive Euro and Pound

Developments and speculation surrounding central banks is likely to driver the Euro to Pound exchange rate for most of the week.

The Pound’s losses last week were due to falling Bank of England (BoE) interest rate hikes and the Euro’s recent weakness has been due to low market expectations of a more hawkish European Central Bank (ECB) any time soon.

Essentially, if Bank of England interest rate hike bets rise again or if anything influences the ECB outlook, the Euro to Pound exchange rate could see a major shift in movement.

Upcoming data could also influence EUR/GBP, but with the European Central Bank holding its April policy decision on Thursday the potential effect of data could be limited.

Of course, any surprising comments from bank officials could influence central bank speculation too.

Bank of England Deputy Governor Sam Woods will hold a speech on Tuesday, followed by speeches from policymaker Haldane and Governor Carney on Friday.

Friday will also see the publication of Britain’s Q1 2018 growth projections, which could boost BoE interest rate hike bets if they impress investors.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Euro Pound Forecasts