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Pound to Euro Rate Edges Above 1.1700 - GBP/EUR Forecast

April 2, 2024 - Written by John Cameron


The Pound to Euro (GBP/EUR) exchange rate has edged back above 1.1700 on Tuesday.

UK equity markets have made further gains after the re-opening of domestic markets following the Easter holidays. The PMI data also indicated that UK manufacturing is out-performing the Euro-Zone.

The FTSE 100 index briefly broke above the 8,000 level and close to record highs with the firm global tone helping to underpin the Pound.

ING noted that the Pound has held firm around 1.17 and commented; “It is a quiet week for UK data and speakers, but Thursday's final services and composite PMI numbers may prove sterling supportive – if they are confirmed at strong readings.”

As far as UK data is concerned, Nationwide reported that seasonally-adjusted UK house prices declined 0.2% for March after a 0.7% increase the previous month and compared with consensus forecasts of a 0.4% increase for the month.

There was a 1.6% year-on-year increase in prices from 1.2% previously.

According to Nationwide's Chief Economist Robert Gardner; “Activity has picked up from the weak levels prevailing towards the end of 2023 but remain relatively subdued by historic standards.”

He maintained a positive overall stance; “With cost-of-living pressures easing as inflation moves back towards target, consumer sentiment is improving. Moreover, with income growth continuing to outpace house price growth by a healthy margin, housing affordability is improving, albeit gradually.”

Gardner added; “If these trends are maintained, activity is likely to gain momentum, though the pace of the recovery is still likely to be heavily influenced by the trajectory of interest rates.”

Elsewhere in the housing sector, mortgage approvals increased to 60,400 for February from a revised figure of just over 56,000 previously and compared with consensus forecasts of around 57,000.

There was also a net increase in mortgage lending for the month.

As far as inflation is concerned, the British Retail Consortium (BRC) reported that shop prices increased 1.3% in the year to March from 2.5% previously and the lowest inflation rate since December 2021.

Non-food inflation declined to 0.2% while the increase in food prices slowed to 3.7% from 5.0%,

BRC Chief Executive Helen Dickinson, commented; “While these figures are good news for consumers, from this month, retailers face significant increased cost pressures that could put progress on bringing down inflation at risk.”

The UK manufacturing PMI index was revised to 50.3 for March from the flash reading of 49.9 and this was the first reading above the 50.0 threshold since July 2022.

Business optimism increased to an 11-month high, but selling prices increased for the fifth successive month as input prices increased at the fastest rate for a year.

Rob Dobson, Director at S&P Global Market Intelligence, commented; “The end of the first quarter saw UK manufacturing recover from its recent doldrums.”

The Euro-Zone PMI services-sector index was revised to 46.1 for March from the flash reading of 45.7.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented; "It’s a bit disheartening: over the last eight months, the manufacturing industry has been gradually climbing the Output PMI ladder, but it still finds itself on the basement staircase.”

Germn inflation data will be released later in the day with expectations of a slide in the annual rate to 2.2% from 2.5%.

The latest US JOLTS job-openings data is due on Tuesday and will be important for European currencies.

According to MUFG; “Unless there is significant slowdown in US employment growth, the US dollar is likely to continue to trade on a stronger footing this week to reflect the building risk that the Fed could lag behind European central banks when starting to cut rates.”
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