The Euro (EUR) fell below the 0.80 level against the Pound (GBP) on Tuesday after data released in the Eurozone came in below economist expectations and as a report released in the UK heightened speculation that an interest rate rise could occur before the end of the year.
Markit’s latest Eurozone Services and Composite Purchasing managers Index (PMI) reports both failed to match economist expectations, adding further pressure upon the single currency ahead of the European Central Bank’s policy meeting of Thursday.
The Services PMI showed that the regions service sector expanded less than expected last month adding to concerns over the regions recovery.
The PMI rose to 54.2 from 52.8 in June, below the 54.4 forecast.
National reports from Markit showed services indexes rose in Germany and Spain in July. In Italy, the gauge declined to 52.8 from 53.9 in June, which was the highest since 2010.
France however disappointed yet again after its figure remained in contraction territory.
Any figure above 50 indicates expansion, whilst one below indicates contraction.
Despite the rise in activity the data was not enough to hide the deflationary pressures weighing on the region.
The single currency is under pressure from expectations that the European Central Bank will introduce new monetary easing measures at Thursday’s policy meeting in an effort to tackle the threat of low inflation.
The Pound meanwhile found support from a UK centric service PMI which showed that the sector expanded more-than-expected last month.
The data showed that activity increased at its fastest pace since last November and that employment in the sector surged.
Expectations are growing that the UK’s unemployment rate could now tick down below 6% by the end of the year.
Speculation over an interest rate rise by the Bank of England was also increased.
‘The pick-up in the composite PMI somewhat increases the chances that the MPC decides to raise interest rates before the end of the year and may even produce a split interest rate vote tomorrow for the first time since July 2011. After all, the MPC has been expecting the recovery to lose steam in the second half of this year. Nonetheless, with inflation still on track to ease further this year and debt burdens remaining high, we still expect rises in interest rates to be much more gradual than during past economic recoveries,’ said Samuel Tombs, senior Economist at Capital Economics.
Against the US Dollar (USD) the Euro is forecast to remain under pressure as investors expect US data releases to lend support to signs that the world’s largest economy is strengthening broadly.
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.3392 ,
Euro,,British Pound,0.7930 ,
Euro,,Australian Dollar,1.4342 ,
Euro,,Canadian Dollar,1.4627 ,
[/table]
