The Pound-Euro rate could stay under pressure if UK PMIs soften, while steadier Eurozone activity may give the single currency an edge.
The Pound Euro (GBP/EUR) exchange rate wavered marginally lower on Tuesday as markets reacted to the UK’s latest government borrowing figures and Confederation of British Industry (CBI) data.
At the time of writing, GBP/EUR was trading at around €1.1650, having wobbled slightly lower through the session.
Pound to Euro (GBP/EUR): 1.166156 (0.00%)
Euro to Dollar (EUR/USD): 1.145842 (-0.04%)
DAILY RECAP:
The Pound (GBP) faced some pressure on Tuesday after the UK published its latest government borrowing figures.
The public deficit surged to £18.3bn in August, marking the second-highest August on record. The borrowing figure was well above market expectations for £15.7bn and the Office for Budget Responsibility’s (OBR) forecast for £14.8bn.
This raised concerns about the state of the public finances ahead of the Autumn Budget, with Chancellor John Healey facing a daunting challenge.
However, Sterling’s losses were contained by stronger-than-expected manufacturing data from the CBI.
A drop in oil prices also seemed to aid GBP. The sharp decline in crude prompted a drop in UK gilt yields, thereby lowering government borrowing costs. This helped to partially offset the concerns about the borrowing figures, as lower bond yields reduce the cost of servicing government debt.
Meanwhile, the Euro (EUR) was uncertain on Tuesday as a lack of data left the currency vulnerable to competing external pressures.
On one hand, political and geopolitical concerns pressured the single currency. Political uncertainty in Germany and simmering EU-Russia tensions generated headwinds.
However, the Euro was supported by the recent decline in oil prices as it eased energy security concerns across the bloc.
Near-Term GBP/EUR Forecast: PMIs in the Spotlight
Looking forward, the preliminary PMI results for both the Eurozone and the UK are the focus for GBP/EUR on Wednesday.
In the Eurozone, manufacturing activity is forecast to have held steady in September while service sector activity is forecast to slow. Meanwhile, both manufacturing and services activity in the UK are expected to moderate.
If the releases print as expected, Sterling may find itself subdued against the Euro. However, any unexpected results may drive steeper movement in the Pound Euro pair.
Additionally, two speeches from European Central Bank (ECB) policymakers could influence the single currency. ECB Vice-President Boris Vujčić is due to speak in the morning, while Chief Economist Philip Lane is due to speak in the evening.
Vujčić is considered to be on the hawkish end of the spectrum, while Lane is seen as more dovish. As a result, mixed comments could muddle EUR’s directional bias.
Our currency coverage draws on live market data, official economic releases and published bank research.
