Euro pound (EUR/GBP) wavers following UK borrowing data
The euro pound (EUR/GBP) exchange rate is trading without a clear direction this morning following the UK government’s latest borrowing figures.
At the time of writing the EUR/GBP exchange rate is trading at €0.8539, virtually unchanged from this morning’s opening rate.
Euro (EUR) wavers amid data lull
The safe-haven euro (EUR) is struggling to attract investor support this morning amid a cautiously upbeat market sentiment.
Elsewhere, a modest US dollar (USD) recovery serves to pressure EUR exchange rates, due to the currency pairing’s negative correlation. An ongoing USD selloff has served to boost EUR sentiment in recent days. However, as markets brace for the looming Jefferson Hole Symposium, at which the central bank will gather to discuss Fed monetary policy, a slight rebound for USD limits EUR’s movements amid a data-light session.
Elsewhere, despite confirmation of increasing inflationary pressures in the Eurozone yesterday, markets appear largely unmoved by the slight uptick in prices pressures across the bloc. This is likely due to the European Central Bank’s (ECB) tepid stance in recent weeks.
The bank has adopted caution about committing to a specific interest rate cut trajectory due to concerns over possible inflation rebounds, clouding ECB rate cut expectations.
As such, the common currency may continue to move without a clear direction throughout today’s session as investors await further notable data from within the bloc.
Pound (GBP) undermined by UK borrowing data
The pound (GBP) is struggling to attract investor support this morning following the release of the government’s latest public borrowing figures.
The data showed that public sector borrowing surged to £3.1bn last month, surpassing market forecasts of £1.5bn. Amid news that that the UK government borrowed over twice as much as expected in July, revived concerns of a ‘black hole’ in UK spending hampered GBP exchange rates.
Cara Pacitti, senior economist at the Resolution Foundation, expressed concern over the fiscal challenged ahead of the new Labour government in the UK, commenting:
‘With borrowing £3 billion higher-than-expected in July, the deteriorating state of the public finances illustrate the challenges that Rachel Reeves will face ahead of her first Budget this Autumn.
The fiscal inheritance facing the Chancellor is one of rising taxes, increasing spending challenges, and very little wriggle room in the event of bad economic news. This combines to create a challenging backdrop for the new Government to realise its ambitions of boosting growth while putting the public finances on a sustainable path.’
With UK Chancellor Rachel Reeves’ Autumn budget in sight, signs of significant public overspending could continue to apply downward pressure to Sterling today, as markets increase their expectations of a downbeat government budget later in the year.
Euro pound exchange rate forecast: PMIs in focus
Looking ahead, the latest preliminary PMIs are due for release in both the UK and the Eurozone.
In the Euro area, both services and manufacturing activity are due to have held steady, with the indexes set to print at 51.9 and 45.8, respectively. Signs of stagnant private sector activity may sour EUR sentiment, while ongoing contractions in the manufacturing sector could further dent the euro.
Looking to the UK, a forecast services expansion could underpin GBP, pointing to continual growth within the vital sector.
