Dovish European Central Bank Minutes Drag Euro Pound Exchange Rate Lower
The dovish nature of the European Central Bank’s (ECB) latest set of meeting minutes drove the Euro to Pound (EUR/GBP) exchange rate sharply lower.
As the central bank confirmed its intention to keep monetary policy looser for longer, maintaining an accommodative stance, this left the Euro (EUR) on a downtrend.
While markets had previously been quick to dismiss the ECB’s dovish message the minutes weighed heavily on demand for the single currency.
Although policymakers sounded a note of ‘cautious optimism’ over the prospect of a Eurozone economic recovery coming in 2021 this failed to offer investors much cause for confidence.
With the central bank maintaining a generally cautious outlook the appeal of the Euro proved largely limited, especially in the face of the latest bout of market risk appetite.
Fresh UK Services PMI Contraction Set to Weigh on Pound Sterling
However, the Euro to Pound exchange rate could return to a stronger footing ahead of the weekend on the back of February’s UK manufacturing and services PMIs.
Particular focus looks set to fall on the services PMI as the sector still accounts for more than two thirds of the UK gross domestic product.
As a result, any fresh signs of weakness here would increase the odds of the first quarter growth rate turning negative.
Forecasts point towards the services PMI remaining trapped in a state of contraction, only rising from 39.5 in January to 41 in February.
Such a weak showing would offer fresh evidence of the severe impact of the current national lockdown on the health of the UK economy.
With markets still seeing no signs of clarity over the UK’s potential exit from its extreme social restrictions the appeal of the Pound could naturally deteriorate on Friday.
As the economy appears at risk of remaining under substantial pressure for the foreseeable future the EUR/GBP exchange rate may find a solid rallying point here.
Euro Exchange Rates Vulnerable to Underwhelming Eurozone Services PMIs
Even so, the Euro could also come under a degree of pressure with the release of the latest set of Eurozone services PMIs.
After the weakness seen in January forecasts point towards another underwhelming month for the service sector across the currency union.
While the service sector is not such a major driving factor of the Eurozone economy as it is in the UK any fresh deterioration could still weigh heavily on EUR exchange rates.
With markets already betting that the Eurozone economy is on course to suffer a double-dip recession in the first quarter the Euro looks vulnerable to any underwhelming PMIs.
Unless the economy can demonstrate signs of resilience in the face of the ongoing pandemic disruption the Euro to Pound exchange rate may struggle to find any particular traction.
