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Pound Euro (GBP/EUR) Exchange Rate Strengthens amid Upbeat Service Sector Index

March 24, 2023 - Written by John Cameron

Pound Euro (GBP/EUR) Exchange Rate Strengthens amid Upbeat Service Sector Index



The Pound Euro (GBP/EUR) exchange rate strengthened on Friday, following the release of the latest private sector indexes for the UK. While below forecast, they pointed to consistent growth in the UK’s services sector.

At the time of writing, GBP/EUR traded at around €1.1376, a rise of roughly 0.3% from Friday’s morning rates.

Pound (GBP) Underpinned by Upbeat Economic Growth Indexes



The Pound (GBP) was underpinned during Friday’s trade by upbeat private sector indexes. While the readings did come in under forecast, the accompanying reports pointed to positive signs for the UK’s economic outlook.

Specifically, the UK’s vital service sector remained in growth territory, printing at 52.8. While below the forecast of 53, it still reflected signs of vitality in the sector, and counterbalanced contractions in the UK’s manufacturing sector.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented on the indexes. He stated: ‘However, the bigger picture is that the improvement in order book growth adds to signs that a near-term recession has been avoided, and an upturn in companies' expectations for the year ahead indicates that business sentiment has been little affected so far by the banking sector woes.’

A rebound in the UK’s retail sales figures may have provided another tailwind for Sterling. February’s sales figures printed far above forecasts on Friday morning, showing sales had increased by 1.2%, far above the expected growth of 0.2%.

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However, a fluctuating market mood during the session may have prevent GBP from fully capitalising on these upbeat data prints, keeping Sterling muted against other peers.

Euro (EUR) Falls amid Shock Manufacturing Contraction



The Euro (EUR) weakened during Friday’s morning session, following the publication of the latest private sector PMI flashes.

While the Eurozone’s service sector grew more than expected, the manufacturing section contracted further than thought during March. The index printed at 47.1, far below forecasts of 49. While the EU’s private sector showed signs of growth, the imbalance may have weighed on the Euro.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated: ‘Growth is also very unbalanced, driven almost solely by the service sector with manufacturing largely stalled and struggling to sustain production in the face of falling demand.’

Anxieties over the European banking sector may have contributed further headwinds to the common currency during Friday’s trade. Deutsche Bank shares fell during the session, despite assurances from the European Central Bank (ECB) that support would be provided.

The anxieties largely centred around the expectation of another bank to fall, with Deutsche Bank being focused on due to various recent leadership changes and restructurings, much in the same way as Credit Suisse. With none of these measures appearing to have had much success, the bank remains under pressure.

Pound Euro (GBP/EUR) Exchange Rate Forecast: UK CBI Data to Dent Pound?



For the Pound (GBP), Monday brings the latest distributive trades data from the Confederation of British Industries (CBI). This index reflects the general health of the UK’s retail sector, encompassing sales, business sentiment and hiring. Currently, this index is forecast to tick downward, falling to -18.

If this prints accurate, it could weigh heavily on the Pound due to the importance of the UK’s retail sector. While sales appear to be showing signs of improvement, a poor index reading may undermine this sentiment.

For the Euro (EUR), the German Ifo business climate reading may be the core driver of movement. On Monday, this index is forecast to decrease from 91.1 to 90.9. If this prints in line with expectations, the decline in optimism could weigh on the Euro, but as the reading would still reflect a more upbeat mood the losses may be tempered.

Elsewhere, continued anxieties around the European banking sector are likely to play a role in shaping the Euro’s appeal. If further jitters remain present through the week, EUR may be capped.

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