On Thursday the Euro to GBP exchange rate eased away from yesterday’s highs following a stream of European economic reports.
While the Pound began local trading on a strong footing, the currency’s five-day rally against the US Dollar came to an end after UK growth figures were published. Sterling also slipped modestly against the Euro.
Yesterday the Pound posted widespread gains in response to upbeat domestic retail sales figures and ever-so-slightly hawkish Bank of England meeting minutes.
As a consequence of the Pound’s strength, the EUR/GBP pairing fell to its lowest levels since 2012.
However, Sterling’s advances were trimmed as investors considered Thursday’s manufacturing/services PMI data for the Eurozone (and its largest economies) and the UK’s first quarter growth report.
Although the Eurozone’s PMI data showed contraction in France and slowing growth in both the Eurozone’s and Germany’s manufacturing sectors, the services report for the currency bloc was very upbeat.
Germany’s composite PMI also held at 56.1 and demonstrated that private sector employment growth surged to a 29-month high.
A statement issued by Markit economist Oliver Kolodseike observed; ‘Recovery prospects in Germany’s private sector continued to brighten in May, with the flash PMI signalling further solid increases in activity and new orders. Furthermore, we saw rising workloads feed through to meaningful employment gains, with the latest rate of job creation the highest since late-2011.’
Meanwhile, UK growth figures confirmed expansion of 0.8 per cent in the first quarter of 2014.
As some industry experts had been hoping for a positive surprise, this result saw the Pound ease lower.
The report prompted this response from economist David Tinsely; ‘It is a little surprising that consumption remains a significant driver of output growth, but the rise in business investment is a major plus and helps give the impression that the recovery is broadening out’.
According to the data, imports slipped by 1.1 per cent in the first quarter and exports dropped by 1 per cent.
A separate UK report showed that the UK posted a larger-than-anticipated budget deficit last month, with net borrowing coming in at 11.5 billion Pounds – considerably higher than the 9.5 billion Pound reading anticipated.
Tomorrow additional volatility in the Euro to GBP pairing is likely to be occasioned by German growth data.
On a seasonally adjusted basis, the German economy is forecast to have expanded by 0.8 per cent in the first quarter, quarter-on-quarter.
Euro to Pound Update – 23/05/14
Yesterday the Euro to Pound exchange rate trimmed recent declines following the release of on-target growth data for the UK.
As investors have become used to UK reports surprising to the upside, the news that the UK economy expanded by 0.8 per cent in the first quarter of the year as forecast was met with a lukewarm response.
However, the Pound recovered its modest losses and pushed the Euro to a 17-month low on Friday.
The Euro also slid to a three-month low against the US Dollar thanks to a steeper than anticipated decline in the Ifo’s business confidence report for Germany.
The Ifo gauge slid from 111.2 in April to 110.4 in May, indicating that problems persist in even the Eurozone’s most buyout economy.
The result added to the case for European Central Bank stimulus being introduced in June.
The Euro consequently softened against the Pound and extended its five-day decline against the US Dollar to 0.5 per cent.
As observed by forex strategist John Hardy; ‘The Ifo survey is the trigger for more Euro weakness today. The worry now is that momentum is waning in the core and that strengthens the case for the ECB to move in June. There is some nervousness around the European election results too.’
It is believed that the election results will show anti-EU sentiment is growing.
The EUR/GBP pairing is likely to hold declines over the weekend.
Further Euro losses could occur next week if Germany’s retail sales and employment reports fail to meet forecasts.
UK home loans and consumer confidence figures will also have an impact on the Euro to Pound exchange rate.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.3631,
Euro,,British Pound,0.8096,
Euro,,Australian Dollar,1.4777,
Euro,,New Zealand Dollar,1.5955,
Euro,,Canadian Dollar,1.4858,
[/table]
