The euro shifted lower versus the pound on Thursday after the European Central Bank kept interest rates on hold as expected and after ECB President Christine Lagarde disappointed her audience. Both pound and euro investors will look ahead to PMI data today.
The pound euro exchange rate closed 0.1% higher at €1.1860, a touch down from the 5-week peak of €1.1882 reached earlier in the session.
The pound pushed higher versus the euro in the previous session, but more broadly sterling traded mixed versus its peers. With no economic data drive movement pound investors were looking ahead to the end of the month which will bring booth the Bank of England interest rate decision and Brexit on consecutive days. Investor expectations for a rate cut have eased this week from 70% to 50% on improved data. However, neither way is a done deal, meaning UK data will be more in focus than usual.
Today investors will look towards the release of preliminary UK manufacturing and service sector PMI’s for signs that the UK economy is slowing starting to turn a corner. Analysts are expecting manufacturing activity to remain in contraction territory in January (48.7), but less pronounced than December (47.5). The figure 50 separates expansion from contraction. The service sector, the dominant sector in the UK economy is expected to record an expansion in activity in January after stagnating last month. Strong prints could ease BoE rate cut expectations and boost the pound.
Can Eurozone Manufacturing PMI Impress After ECB Disappoint?
The ECB left interest rates unchanged at 0% and the bond purchase programme remained at €20 billion euros per month, as expected. The ECB also launched a strategic review of its monetary policy strategy; a review which could result in the central bank adjusting its inflation target later in the year. However, the big disappointment was Christine Lagarde’s failure to acknowledge improvements in eurozone economic data. As a result, the euro was exposed to further weakness.
Today investors will look towards the release of eurozone PMI figures. Analysts are expecting to see a slight improvement in the data, however the manufacturing sector is forecast to remain in contraction territory.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 GBP = 1.13990 EUR
Here, £1 is equivalent to approximately €1.14. This specifically measures the pound’s worth against the euro. If the euro amount increases in this pairing, it’s positive for the pound.
Or, if you were looking at it the other way around:
1 EUR = 0.87271 GBP
In this example, €1 is equivalent to approximately £0.87. This measures the euro’s worth versus the British pound. If the sterling number gets larger, it’s good news for the euro.