Euro Pound Exchange Rate Softens Despite Eurozone Economic Recovery
The Euro Pound (EUR/GBP) exchange rate is softening modestly this morning amid mixed economic data and hawkish ECB speakers.
At time of writing the EUR/GBP exchange rate is trading around £0.8851, a 0.22% drop from this morning’s opening levels.
Euro (EUR) Undermined by Waning PPI Figures
The Euro is experiencing mixed success this morning as producer price index inflation unexpectedly declined by 2.8%, against expectations of a modest 0.3% fall. With inflationary pressures appearing to be easing, the European Central Bank (ECB) could slow, or pause, their tightening cycle sooner than expected.
Meanwhile, final readings of PMIs in the Euro area showed the Eurozone economy is recovering at a faster pace than expected. The services sector soared to an eight-month high of 52.0, just shy of a preliminary 52.3 reading. February marked the second consecutive month of expansion. Chris Williamson, Chief Business Economist at S&P, commented:
‘A resounding expansion of business activity in February helps allay worries of a euro zone recession, for now.
‘There are clear signs that business confidence has picked up from the lows seen late last year, buoyed by fewer energy market concerns, as well as signs that inflation has peaked, and recession risks have eased.’
Pound (GBP) Supported by Improving UK Economic Outlook
Meanwhile, the Pound managed to shrug off many of the headwinds weighing heavily and are posting modest gains against the Euro. Despite optimism waning over the post-Brexit deal, the Bank of England (BoE) Chief Economist Huw Pill provided some much-needed optimism over the state of the UK economy.
Limiting these gains, however, is the expected opposition from former prime minister Boris Johnson over the Windsor Framework. Speaking at a conference in London, Johnson voiced his criticisms of the Northern Ireland protocol deal, saying he would find it ‘very difficult’ to back the trade deal. Johnson also added:
‘We must be clear about what is really going on here. This is not about the UK taking back control. This is the EU graciously unbending to allow us to do what we want in our own country, not by our laws, but by theirs.’
Pill lent some considerable support to Sterling after commenting that the UK economy is faring slightly stronger than expected. Amidst relentless headwinds, the economy is showing more momentum than expected, he said:
‘Survey indicators that have become available since the publication of the forecast have surprised to the upside, suggesting that the current momentum in economic activity may be slightly stronger than anticipated.’
Euro Pound Forecast: BoE Speech to Weigh Sterling Down?
Looking ahead, the Euro Pound exchange rate could see further movement with a speech from Andrew Hauser, (BoE) Executive Director for Markets. Despite an optimistic take from Pill, the general feeling of the central bank appears to be gearing up to slow down its tightening cycle. If Hauser alludes to this, the Pound could dip once again.
Meanwhile, the Euro will be left on market sentiment to close the week’s session. Looking ahead to next week, an expected fall in retail sales could weigh on the single currency. Despite predicted improvements from January, continuing fall in sales could temper rate hike bets further.