The Pound-Euro rate could remain under pressure if Bailey strikes a cautious tone, although weaker German factory orders may limit further Euro gains.
The Pound to Euro (GBP/EUR) exchange rate ticked lower on Thursday, pressured by further signs of rising inflation in the Eurozone as well as a downgrade to UK service sector growth last month.
At the time of writing, the GBP/EUR exchange rate was trading at around €1.1628. A slight decline from the start of Thursday’s session.
DAILY RECAP:
The Euro (EUR) traded with modest support on Thursday, following the publication of the Eurozone’s latest producer price index.
According to data published by Eurostat, after a 0.3% contraction in June, producer prices surged 1.6% in July, outpacing forecasts for a 1.3% rise.
The sharp acceleration in factory gate prices, particularly when coupled with Tuesday’s strong consumer price index, painted a picture of building inflationary pressures within the Eurozone.
This in turn underpinned expectations that the European Central Bank (ECB) may continue to tighten monetary policy beyond the interest rate hike it is widely expected to deliver next week.
The Pound (GBP) was muted on Thursday after the latest UK services PMI was revised lower.
The final S&P Global UK Services PMI came in at 52.5 for August, down from the preliminary estimate of 52.8, although this still marked an improvement from July’s 52.1 and represented the fastest pace of services-sector growth since April.
The weaker revision nevertheless had a limited impact on GBP exchange rates, with Sterling also being influenced by broader developments in financial markets, as UK government borrowing costs remained elevated following the recent global bond selloff.
Near-Term GBP/EUR Forecast: Improving Eurozone Economic Sentiment to Boost the Euro?
Looking ahead, the next catalyst for movement for the Pound Euro exchange rate is likely to be a scheduled speech by Bank of England (BoE) Governor Andrew Bailey.
Sterling could come under pressure on Friday morning if – despite strengthening bets for a BoE rate hike later in the year – any guidance from Bailey remains cautious.
Meanwhile, the publication of Germany’s latest factory orders data could dampen demand for the Euro on Friday, as July’s data is forecast to show a sharp slowdown in order growth.
Our currency coverage draws on live market data, official economic releases and published bank research.
