Euro Buyers See Best GBP/EUR Exchange Rate in Two Years

September 24, 2024 - Written by John Cameron

STORY LINK Euro Buyers See Best GBP/EUR Exchange Rate in Two Years

The latest Euro-Zone was significantly weaker than expected which triggered a renewed Euro slide in global markets.

According to ING; “As the Olympic flame was extinguished, so was eurozone optimism.”

UK data was slightly weaker than expected, but still pointed to UK out-performance.

In this environment, the Pound to Euro (GBP/EUR) exchange rate jumped to 2-year highs above 1.1950.

ING sees cope for a near-term test of 1.20.

According to MUFG; “The GBP has been the top performer and is set up to extend its advance after the BoE’s latest policy update.”

Hints on fiscal policy will be watched during the day with Chancellor Reeves due to speak at the Labour conference.

The Euro-Zone PMI manufacturing index dipped back into contraction territory at a 9-month low of 48.9 for September from 51.0 previously and well below consensus forecasts of 50.6.

The services-sector data also retreated to a 7-month low of 50.5 from 52.9.

The slide was led by Germany with the manufacturing index at a 12-month low of 40.3 from 42.4 while the services-sector index retreated to a 6-month low.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank commented; "The downturn in the manufacturing sector has deepened again, evaporating any hope for an early recovery. The slump in manufacturing is beginning to spill over into Germany's otherwise resilient services sector. A technical recession seems to be baked in.”

He did see a glimmer of hope for the fourth quarter.

Output prices increased at the slowest rate since February 2021.

De la Rubia noted that inflation pressures eased and commented; “Add to that the deepening recession in manufacturing and the near-stagnation of the services sector, and the possibility of another rate cut in October could very well be on the table, even though this is not the expectation of the market yet.”

The UK PMI manufacturing index declined to a 3-month low of 51.5 for September from 52.5 previously and below consensus forecasts of 52.3.

The services-sector index retreated to a 2-month low of 52.8 from 53.7 previously and below expectations of 53.5.

According to Chris Williamson, Chief Business Economist at S&P Global Market Intelligence; “The September PMI data bring encouraging news, with robust economic growth being accompanied by a cooling of inflationary pressures.”

Output prices increased at the slowest rate since February 2021 which will be a positive sign for the Bank of England.

He added; “The survey data therefore support the view that there is scope for interest rates to fall further in the closing months of 2024.”

The latest COT data, released by the CFTC reported a sharp decline in long, non-commercial Pound positions to a 5-week low of 63,000 contracts from above 90,000 the previous week.

The sharp drop in long positions will lessen the risk of further position liquidation.

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TAGS: Pound Euro Forecasts