Although European Central Bank (ECB) President Mario Draghi proved distinctly dovish on Thursday the EUR/GBP exchange rate is recouping its initial losses today in spite of weak German data.
Underperformance on UK PMIs Weakened Pound (GBP) to Boost EUR/GBP Currency Pair to Four-Month Peak
Early in the week the single currency (EUR) met with some mixed data as the Eurozone’s Manufacturing PMIs printed at lower levels than had been forecast, with the major exception of Germany which defied expectations to show an increase in growth. This raft of disappointment, however, was swiftly eclipsed by the release of the currency union’s lowest Unemployment Rate since 2012, falling ahead of expectations to 10.9%. As fresh worries over the Chinese economy were sparked on Tuesday, the Euro benefitted further from another round of risk-aversion and trader caution with the EUR/GBP exchange rate consequently rising to strike a four-month high of 0.7394.
In contrast to its strengthening rival, the Pound (GBP) was battered by a succession of declining PMI figures with the Manufacturing, Construction and Services sectors all reporting a decreased rate of growth in August. While the Construction PMI did not sink below the previous month’s result, this slightly silver-lining was overshadowed by a much more significant shortfall on the Services figure, which fell from 57.4 to 55.6. Given that the Services industry contributes the greatest share to the domestic GDP, this poor showing naturally only worsened the bearishness of Sterling, allowing the Euro to capitalise.
Bearish Trading Ensued as ECB President Talked Down the Single Currency (EUR)
Yesterday’s European Central Bank (ECB) Rate Decision and the accompanying press conference from President Mario Draghi was of particular interest to investors, as speculation had been rife with regards to the possibility of imminent tightening measures in response to the Chinese economic slowdown. Although the ECB elected to maintain interest rates at their current level of 0.05%, a move that should have been relatively Euro-supportive, some pointedly dovish comments from Draghi sent the common currency rapidly falling across the board. One of the many casualties of this abrupt softening, the EUR/GBP pairing slumped from 0.7354 to 0.7279 and trended low for much of the rest of the day.
EUR/GBP Exchange Rate Forecast: Pairing Likely to Continue Uptrend on Lack of Data
In spite of substantially weaker-than-expected German Factory Orders on Friday morning, which showed marked contraction at -0.6% instead of limited growth of 0.4%, the Euro returned to an uptrend as the effect of Draghi’s words began to wear off. As the ECB did not opt to enact an interest rate cut or any quantitative easing, sentiments soon began to turn and the EUR/GBP pairing looks likely to regain much of its lost ground ahead of the weekend.
With no fresh domestic data releases due from the UK before next week, the Pound stands to remain generally sluggish, driven primarily by sentiment on its rivals.
Current EUR, GBP Exchange Rates
At time of writing the Euro to Pound Sterling (EUR/GBP) exchange rate is moving positively at 0.7311, while the Pound Sterling to Euro (GBP/EUR) pairing is down in the range of 1.3674.