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Pound to Euro Exchange Rate: GBP/EUR Could Bounce Back on Eurozone Inflation Figures

January 3, 2019 - Written by John Cameron

The Pound Euro (GBP/EUR) exchange rate fell below €1.1100 on Wednesday as Sterling struggled across the board.

The pairing was able to recover slightly on Thursday however, and could extend gains tomorrow if the UK’s Services PMI impresses and the Eurozone’s inflation figures disappoint.

The Pound (GBP) failed to find much support from yesterday’s UK Markit Manufacturing PMI figures for December, despite them showing a stronger-than-expected increase to 54.2 against last month’s 53.6.

However, while the Pound recorded notable losses against currencies like the US Dollar, its losses against the Euro were limited as the common currency came under pressure of its own.

Yesterday saw the release of Germany’s Markit Manufacturing figures for December. The gauge dropped to a 33 month low of 51.5, dampening confidence in EUR.

Both Euro (EUR) and Pound (GBP) investors have also remained apprehensive as UK Brexit discussions have returned to the fore, further increasing concerns that Prime Minister Theresa May’s Brexit withdrawal agreement will face rejection when MPs return to debate the deal on 9 January.

GBP/EUR Exchange Rate Steady Despite Weakest ‘Upturn in Commercial Work for Seven Months’

The Pound (GBP) was left relatively unmoved today by the publication of the UK PMI Construction data for December, which showed a worse-than-expected decrease to 52.8 against last month’s 53.4.

The decline in the index was partly attributed to Brexit-related uncertainty, with Duncan Brook, Group Director at the Chartered Institute of Procurement and Supply, commenting:

‘[C]onstruction firms remained resilient as optimism for the future rose to an eight-month high. This muted end to the year could not dampen hope completely as construction kept its head just above water waiting for political resolutions to the Brexit crisis and a clear path ahead.’

However, GBP investors have been subdued by the news that Theresa May has been advised to further delay her Brexit deal vote. Former Brexit Secretary David Davis commented that ‘time is our friend’ and that ‘the more we prepare to leave the EU without a deal, the more likely a good deal becomes.’

Parliament is currently set to vote on the Brexit deal in the week beginning 14 January.

GBP/EUR Exchange Rate Forecast: Euro to Weaken on Poor Inflation Figures?

While the GBP/EUR exchange rate has been struggling this week, the tide could turn tomorrow.

The UK’s Markit Services PMI is due out tomorrow and is expected to increase. As the UK services sector accounts for over 70% of the UK’s economic output, this could provide Sterling with a lift ahead of the weekend.

The GBP/EUR exchange rate is also likely to gain if tomorrow’s Eurozone inflation data shows a decrease in consumer price pressures.

Slowing inflation will encourage the European Central Bank (ECB) to maintain a cautious approach to monetary policy and could give the pound the chance to rally.

As it stands, inflation is expected to fall -0.2% on the month, and dip from 4.9% to 4.2% on the year.

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