EURGBP Looks Lower After Tuesday’s Bounce Fades

The EURGBP exchange rate gave up Tuesday’s gains and could head for the support at 0.5400 as the market awaits PMI data from Germany, the Eurozone and the UK. All three are looking at a cooling of manufacturing numbers with costs rising and the services rebound could slow in the UK. That data set will determine the path of the euro versus the pound today.

The EUR to GBP is trading just above support at 0.5400 with the Bank of England rate meeting tomorrow.

Bank of England ahead on Thursday after inflation

The Bank of England will release its latest interest rate and monetary policy outlook on Thursday and ING see a first rate hike in Q1 2023.

“After the excitement surrounding the Fed’s dot plot, Thursday’s Bank of England meeting is a good opportunity to ask where the UK will sit in the forthcoming global rate hike cycle,” analysts said.

“We know the likes of the Bank of Canada are now talking about a rate hike in 2022, and markets are certainly beginning to think this way in the UK too. There are now roughly two rate hikes priced by mid-2023 – albeit the first of those is a partial one, taking us from 0.1% to 0.25%,” they added.

A previously dovish policy member in Gertjan Vlieghe, has hinted of a possible move in late 2022, but the bank may shy away from saying anything that could rock markets at this meeting.

One last comment from ING said: “…the Bank’s view on growth has already been towards the more optimistic end of the spectrum, and the spread of the new Delta variant adds an extra dimension of uncertainty.”

Those cases were over 11,000 on Tuesday and these are the highest levels since February despite it now being the summer months.

The virus has actually started to spread into Europe with the Indian variant and that is the only reason that sterling is seeing further support here.

PMI data will lead on Wednesday

Before we hear from the Bank of England there will be PMI data on Wednesday for the German and Eurozone economies, before the UK numbers.

All three are expected to see manufacturing slow as higher prices and shortages bite. The services rebound is predicted to stall in the UK also, due to the reopening head start. The actual numbers could determine the path of the euro v gbp exchange rate ahead of the BoE meeting.

Many analysts see the current surge in inflation cooling off in 2022 with the reopening spikes fading away. That would take pressure off of the central banks to exit the current levels of stimulus more quickly.

The EURGBP exchange rate trades at 0.8560 with the next two days likely to see the 0.8540 level tested again. The yearly lows in the euro were at 0.8472 back in early-April.

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