Pound Euro (GBP/EUR) Exchange Rate Rangebound as UK Manufacturing Sector Slumps

April 3, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Rangebound as UK Manufacturing Sector Slumps

Pound Euro (GBP/EUR) Exchange Rate Trends Sideways as Manufacturing Sectors Struggle

The Pound Euro (GBP/EUR) exchange rate traded in a narrow range on Monday. The pairing came under pressure from expectations of softer UK inflation, and confirmation of a downturn in UK manufacturing sector output.

Conversely, poor Eurozone manufacturing performance and Bank of England (BoE) rate hike bets underpinned the exchange rate.

At time of writing the GBP/EUR exchange rate was at around €1.1375, virtually unchanged from this morning’s opening figures.

Pound (GBP) Gains despite Cooler Inflation Expectations

The Pound (GBP) firmed on Monday. GBP saw a boost from bets on additional interest rate increases from the Bank of England (BoE). Hawkish comments from BoE Governor Andrew Bailey last week inspire the bets.

However, these expectations were curbed by the latest UK inflation expectations survey. The British public’s expectations for inflation eased in March from 5.6% to 5.4%. The data could influence the BoE’s next interest rate decision.

Additionally, Sterling’s gains were capped by the final reading of March’s PMI for the manufacturing sector. The PMI confirmed that the sector declined last month after registering its first growth in eight months in February.

Speaking on the PMI, S&P Global Market Intelligence direct Rob Dobson said:

‘Although total new orders saw a fractional increase, this followed on from a nine-month sequence of contraction and suggests that order book levels remain low overall. Declining new export order intakes remain a significant drain on demand, offsetting signs of a modest revival in the domestic market.

Euro (EUR) Bolstered by ECB Rate Hike Bets

The Euro (EUR) traded higher on Monday. EUR benefitted from market speculation of an aggressive rate hike schedule from the European Central Bank.

Aggressive comments from ECB policymakers over the past week have strengthened bets on such a move from the central bank. Speaking on Friday, ECB President Christine Lagarde signalled that inflation was currently projected to remain ‘too high for too long’.

The recently announced cut in oil production from OPEC+ likely added to expectations of further action from the ECB. Higher fuel prices have been highlighted as a persistent cause of underlying high inflation in the trading bloc.

On the other hand, the final reading of Germany’s manufacturing sector PMI restrained any upward movement in EUR. March’s PMI confirmed a deepening of the sector’s protracted downturn, with output fall to its lowest level since May 2020.

GBP/EUR Exchange Rate Forecast: Could UK Services Recovery Boost Pound?

The Pound could see mixed movements in the coming week amid the final reading of multiple PMIs. On Monday, the final reading of March’s manufacturing PMI could dent confidence in Sterling if it remains in negative territory.

Meanwhile, the final reading of March’s services PMI is set to edge lower on Wednesday. Output for the UK’s dominant services sector is forecast to have remained in positive territory last month. The data could lift Sterling amongst hopes for a recovery in the UK’s economy.

The release of the latest BoE financial policy summary on Tuesday may inspire some movement in GBP. Investors will be looking for any signals of forward policy from the central bank.

Speaking more generally, additional bets on BoE rate hikes could help lift Sterling over the coming week.
For the Euro, the ECB’s consumer expectations survey could generate movement in the single currency on Tuesday. Evidence of an expected fall in inflation from consumers could weigh on EUR.

The Eurozone will also see PMI final readings this week. The PMI for the Eurozone’s services sector is expected to confirm a fourth consecutive month of growth in the sector on Wednesday. The Euro could see a boost off the back of the data.

Bets on the ECB’s future policy could also influence the Euro’s movements over the coming week. The central bank is still widely expected to pursue a path of aggressive policy tightening in the coming months.

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: Pound Euro Forecasts