GBP to EUR Exchange Rate Rebounds from Fortnight Worst as UK Data Continues to Beat Expectations

February 4, 2020 – Written by Tim Boyer

Following yesterday’s broad plummet in the Pound, the British Pound to Euro (GBP/EUR) exchange rate has steadied somewhat today. Investors are hesitant to sell the Pound too much, as recent data keeps Bank of England (BoE) speculation low. Meanwhile, investors are hesitant to buy the Euro too much amid a lack of strong support for the shared currency. Looking ahead, major services data could influence the exchange rate tomorrow.

Last week saw mixed movement in GBP/EUR, but the pair ultimately ended the week higher. GBP/EUR climbed from 1.1856 to 1.1902 throughout the week, briefly touching on a monthly high of 1.1920 before markets closed on Friday.

However, GBP/EUR shed those gains and fell even lower yesterday. This morning, GBP/EUR even touched on a fresh fortnight low of 1.1713, before rebounding slightly and trending closer to the level of 1.1790 at the time of writing on Tuesday afternoon.

GBP Exchange Rates Steady as Bank of England (BoE) Rate Cut Speculation Continues to Lighten

Bets that the Bank of England (BoE) could cut UK interest rates at some point this year have continued to fade, as recent UK data continues to point towards Britain seeing a rebound in economic activity in 2020.

While Brexit uncertainty persists and is limiting the Pound’s potential for recovery from yesterday’s significant drop, the latest UK data is helping the Pound to hold its ground better today.

Sterling rebounded from last night’s worst levels in weeks, and the Pound to Euro exchange rate saw modest gains.

As well as some modest recovery from yesterday’s sharp plummet, Sterling was boosted by UK data which softened Bank of England (BoE) interest rate cut bets.

Today’s UK construction PMI showed a bigger than expected improvement, rising to 48.4 rather than the expected 46.6. It follows Monday’s manufacturing PMI, which unexpectedly avoided contraction with a result of 50.

Still, while the data boosted the Pound and offset BoE rate cut concerns a little further, analysts continue to warn about Brexit uncertainties. According to Jane Foley, Head of FX Strategy at Rabobank:

‘The market is a little bit spooked by the distance that remains (between the EU and Britain) and the concern that there may be very little potentially compromise done in a relatively short space of time.’

EUR Exchange Rates Lack Drive despite Hopes that Eurozone Outlook Will Improve

Part of the Pound’s recovery today is due to lingering weakness in the Euro.

Investors have been hesitant to buy the Euro in recent sessions. The shared currency is being weakened by strong demand for its biggest rival, the US Dollar, as well as a lack of fresh data support for the currency.

Yesterday saw the publication of some stronger than forecast Eurozone manufacturing PMI data, but US Dollar strength prevented the Euro from capitalising on this.

Today followed with relatively low-influence Eurozone PPI results, which simply met forecasts, slowing to 0.0% month-on-month while the yearly figure edged higher to -0.7%.

As a result of US Dollar strength and a lack of strong market demand for the Euro, the shared currency was unable to avoid losses against the Pound today, even though economists predict stronger performance is ahead for the Euro.

Recent activity indicators including PMIs and surveys are showing signs of recovery, and analysts from Bloomberg predict Eurozone growth will continue to show signs of recovery in Q1 2020.

GBP/EUR Exchange Rate Forecast: Services PMIs Could Cause Big Movement Tomorrow

Wednesday will be the biggest session of the week for UK data, as Britain’s final January PMI results will be published.

UK services and composite PMI stats are due. As services make up a big chunk of Britain’s economic activity, this could give markets a much better idea of the current strength of Britain’s economy.

If the data falls short, Bank of England (BoE) interest rate cut bets could return and the Pound could be in for deeper losses.

On the other hand, if it continues the trend of stronger UK data, BoE rate cut bets will further fade and the Pound will see stronger support.

Brexit uncertainty will remain a focus for the Pound though, and could limit the British currency’s potential for gains.

Key Eurozone data due through the rest of the week may be even more influential.

If tomorrow’s Eurozone PMIs or retail sales stats show fresh signs of recovery, Eurozone recovery hopes could rise and the Pound to Euro exchange rate could see fresh pressure.

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TAGS: Pound Euro Forecasts