Pound to Euro Rate Rebounds as UK Inflation Pressures Trump Business Fears

December 16, 2024 - Written by David Woodsmith

STORY LINK Pound to Euro Rate Rebounds as UK Inflation Pressures Trump Business Fears

The Pound to Euro exchange rate (GBP/EUR) dipped to 2-week lows just above 1.2000 on Monday before a recovery to 1.2040 after the latest round of data releases.

UK business confidence data was uninspiring at best, but evidence of upward pressure on prices reinforced expectations of a cautious Bank of England stance which helped support the Pound.

ING commented; “Services CPI is expected to remain sticky above 5% year-on-year, meaning that the BoE is likely to retain its gradual approach to policy easing.”

The bank expects GBP/EUR support on dips to 1.1975 with net gains to 1.2125.

COT data, released by the CFTC, recorded an increase in long, non-commercial Sterling positions to a 3-week high, limiting the scope for further strong Pound buying, especially if fears over the economy intensify.

According to flash data, the UK manufacturing PMI index retreated further to an 11-month low of 47.3 for November from 48.0 previously and below consensus forecasts of 48.5.

The services-sector index improved to 51.4 from 50.8 previously and slightly above expectations of 51.0.

There were significant weaknesses within the data as orders declined for the first time in 13 months and employment declined at the fastest rate for close to four years.

Prices, however, increased at the fastest rate for nine months.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence commented; “While the December PMI is indicative of the economy more or less stalled in the fourth quarter, the loss of confidence and increased culling of jobs hints at worse to come as we head into the new year.”

Nevertheless, he added; “Policymakers at the Bank of England may be cautious about cutting interest rates, however, given the resurgence of inflation being signalled, adding further to downturn risks in 2025.”

According to flash data, the Euro-Zone PMI manufacturing index was unchanged at 45.2 for November and fractionally below consensus forecasts.

The services-sector index rebounded to a 2-month high of 51.4 from 49.5 previously and above expectations of no change.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented; “The end of the year is somewhat more conciliatory than was generally expected. While manufacturing is still deep in recession, the rebound in services output is a welcome boost for the overall economy.”

He noted on-going political uncertainty in France and Germany, but added; “If future governments manage to chart a clear course, there could still be positive surprises next year.”

After Friday’s close, Moody’s lowered France’s sovereign credit rating by one-notch to Aa3.

According to MUFG; “Moody’s now sees a very low probability that the next government will sustainably reduce the size of the fiscal deficits beyond next year, and sees the risk of durable increase in financing costs which would further weaken debt sustainability.

The bank commented; “While political developments in France pose downside risks for the euro, they are not yet sufficient to trigger a significantly weaker euro on their own.”

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TAGS: Pound Euro Forecasts