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Pound Euro Exchange Rate Rises as UK Factory Orders and Output Soars to New Highs

July 22, 2021 - Written by John Cameron

GBP/EUR Exchange Rate Rises, UK Factory Growth Boosts Sterling

The Pound Euro (GBP/EUR) exchange rate rose by 0.4% today as UK factory output and orders surged to their highest growth rate since the 1970s, buoying confidence in the UK economy. The pairing is currently trading around €1.16.

Analysts at CBI Economics commented on the UK manufacturing sector, saying:

‘UK manufacturing output volumes grew at the joint-fastest pace on record in the three months to July, according to the latest CBI ITS. Manufacturers expect output to grow at an even quicker pace in the next three months – the strongest growth expectations on record.’

Today also saw the Bank of England’s (BoE) deputy governor Ben Broadbent reiterate the bank’s position on inflation, saying that it was most likely to be temporary.

Broadbent said:

‘Quite a bit of the current rise in inflation is actually coming directly from the higher price of oil, something that is likely to fall away through the early part of 2022.’

The dovish BoE, however, failed to dampen demand for the Pound, with confidence in the UK economy growing following the easing of lockdown restrictions on July 19.

Nevertheless, concerns over the ‘pingdemic’ – the NHS track and trace app alerting people to isolate – have begun to weigh on UK market confidence, with fears that widespread isolation could disrupt the economic recovery.

Euro (EUR) Exchange Rate Falls on Dovish ECB Policy Statement

The Euro (EUR) fell today after the European Central Bank (ECB) vowed to maintain its stimulus as it maintains its target of 2%.

Gurpreet Gill, macro strategist at Goldman Sachs Asset Management, commented:

‘As expected, key words—persistent and tolerant—communicated during the conclusions of the ECB’s strategy review remained relevant at today’s ECB meeting. The central bank cemented its dovish policy guidance, noting its persistently accommodative policy stance may require policymakers to be tolerant of inflation overshooting its target.’

As a result, the single currency has fallen following the ECB’s dovish stance about the outlook for the Eurozone’s economy.

In other Eurozone economic news, later today will see the release of the flash Eurozone consumer confidence gauge for July.

Any improvement in consumer morale in the bloc could see the EUR/GBP exchange rate claw back some of its losses as the outlook for the Eurozone’s economic recovery improves.

GBP/EUR Exchange Rate Forecast: UK and Eurozone PMI Data in Focus

Tomorrow will see the release of the UK’s retail sales data for June. Could an improvement in the retail sector further boost the GBP/EUR exchange rate?

Tomorrow will also see the release of the flash UK services and manufacturing PMI. Any growth in either sector could further uplift the Pound.

Euro traders will also eye tomorrow’s flash Eurozone PMI composite figure. If this confirms forecasts and rises to 60, then we could see the single currency claw back some of today’s losses.

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