Introduction to Currency Exchange
The Pound Euro exchange rate may experience fluctuations ahead of the European Central Bank’s (ECB) rate decision, which is expected to be influenced by the release of the latest Purchasing Managers’ Index (PMI) from the UK and Eurozone.
UK and Eurozone PMIs
In terms of the UK, an expected increase in service sector activity in July’s preliminary index could help alleviate economic concerns and boost Sterling sentiment on Thursday morning. The Eurozone PMIs are also anticipated to report an improvement in private sector growth this month. However, with overall growth expected to remain relatively soft, and the ECB’s rate decision looming, any resulting upside in the Euro may be modest.
Daily Recap
The Pound to Euro (GBP/EUR) exchange rate traded positively on Wednesday, recouping the bulk of Tuesday’s losses. At the time of writing, the GBP/EUR exchange rate was trading at around €1.1537, up roughly 0.2% from Wednesday’s opening levels. The Euro was trapped in a narrow range on Wednesday, with EUR investors reluctant to make any aggressive bets ahead of the ECB’s interest rate decision.
ECB Interest Rate Decision
The ECB will conclude its two-day policy meeting on Thursday afternoon, with the bank widely expected to leave its monetary policy unchanged for the first time in a year. While a pause in the ECB’s cutting cycle is largely priced in, the bank’s forward guidance could trigger some volatility, with EUR investors seeking more clarity on how policymakers may shape monetary policy upon their return from the summer break.
Potential Impact on Exchange Rates
A hawkish tone from the ECB could see the Euro jump and even propel EUR exchange rates back to the multi-year highs struck at the start of July. On the other hand, if policymakers signal they are open to further rate cuts amid the risks posed by EU-US trade tensions, the single currency may falter. The Pound edged higher on Wednesday morning, with the increasingly risk-sensitive currency catching bids as markets welcomed news of a US-Japan trade deal.
US-Japan Trade Deal
In the deal announced by US President Donald Trump, Japanese goods will face a 15% tariff when exported to the US, down from the 25% tariff Trump had threatened to impose starting 1 August. The news came as a major relief to investors and triggered a rally in equity markets on Wednesday morning, which also extended to the Pound.
Conclusion
In conclusion, the Pound Euro exchange rate is expected to experience fluctuations ahead of the ECB’s rate decision, influenced by the release of the latest PMIs from the UK and Eurozone. The ECB’s forward guidance and the US-Japan trade deal are also expected to have an impact on exchange rates. As the ECB’s policy meeting comes to a close, investors will be eagerly awaiting the bank’s decision and its potential effects on the currency market.
