Pound Euro Exchange Rate Hits 20-Day Best on UK Goldilocks Hopes

August 23, 2024 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate Hits 20-Day Best on UK Goldilocks Hopes

The latest UK business confidence data triggered fresh hopes of a goldilocks economy with solid growth and moderating inflation pressures.

Anoth weak set of German data undermined the Euro, although the overall Euro-Zone data was more positive.

The Pound to Euro (GBP/EUR) exchange rate hit 20-day highs close to 1.1770 after the latest UK and German data.

GBP/EUR is now tackling key resistance area around 1.1765 which equates to 0.85 for EUR/GBP.

A sustained break above this level would help wider underpin Pound confidence.

ING expects the Euro will regain ground; “We maintain a short-term target of 0.86 in EUR/GBP (1.1630 for GBP/EUR) as we see short-term spreads move in favour of the euro leg over the coming weeks.”

The UK PMI manufacturing index edged higher to a 26-month high of 52.5 for August from 52.1 previously and above consensus forecasts of no change.

The services sector improved to a 4-month high of 53.3 from 52.5 and above expectations of 52.8.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence commented; “August is witnessing a welcome combination of stronger economic growth, improved job creation and lower inflation, according to provisional PMI survey data.

The increase in output prices slowed to the weakest reading since early 2021.

Williamson added; “Inflationary pressures have meanwhile moderated further in August, including notably in the service sector, which has been a key area of concern for the Bank of England.”

The German PMI manufacturing index weakened further to a 5-month low of 42.1 from 43.2 the previous month and below consensus forecasts.

The services sector was in expansion, but failed to meet expectations and also posted a 5-month low.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented; "These numbers are a real mess. The recession in Germany’s manufacturing sector deepened in August, with no recovery in sight. In fact, new orders took a sharper dive than last month signalling more trouble ahead.”

He added; “The anticipated interest rate cuts by the ECB, expected by most analysts, might lift spirits a little, but it’s clear that the overall mood remains poor."

The Euro-Zone PMI services-sector data was more encouraging with stronger growth at 53.3 from 51.9 previously and above consensus forecasts of 51.7.

For the Euro-Zone, output prices increased at the fastest rate for four months which will cause some concerns within the ECB.

ING expects the Euro will regain ground against the Pound; “We remain quite confident about a rebound though, and there are two potential triggers today (ECB wage data) and tomorrow (Bank of England Governor Andrew Bailey’s speech in Jackson Hole).”

MUFG still expects that the ECB will cut rates in September which will limit Euro support; “given what has unfolded since, mixed economic data and the market turmoil and strengthening of the euro, a rate cut is warranted.”

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TAGS: Pound Euro Forecasts