The British pound is lower against the euro on Friday afternoon with the exchange rate giving up early gains to turn lower amid a flurry of survey data from both the United Kingdom and the Eurozone. Although she did give an extensive press conference yesterday, markets were still listening to remarks from ECB President Christine Lagarde on a panel at the World Economic Forum in Davos Switzerland.
GBP/EUR was lower by 4 pips (-0.03%) at 1.1860 with a daily price range of 1.185 to 1.191 as of 1pm GMT, with the currency pair just down from its 2020 highs.
The small declines in the exchange rate come at the end of a busy week where Sterling has made steady gains against the Eurozone’s single currency. Speculation has been rife about the future direction of interest rates in the United Kingdom and the Euro-area. The European Central bank held its meeting yesterday and the Bank of England will hold its own meeting next Thursday.
President Christine Lagarde told a panel at the World Economic Forum (WEF) that “we are not seeing a transmission from wages to inflation yet”. She added “We’re seeing inflation moving a teeny, tiny little bit but this is really minor”. This would appear to be quite the walk back from minutes of the last ECB meeting that made a specific reference to core inflation (minus energy and food) moving higher in the Eurozone. Then when talking about the overall outlook for inflation the ECB President observed that “it would take much higher numbers to actually change the picture fundamentally”.
A big rebound in UK PMIs has likely put a final nail in the coffin of a January rate rise in the UK. The service sector saw much faster than expected expansion and manufacturing only just missed expansion. The Markit services sector PMI was 52.9 versus expectations of 51 and up from 50 the prior month. The manufacturing PMI was 49.8 versus expectations of 48.9 and up from 47.5 reported in December. As a reminder, a level above 50 denotes expansion while a number below 50 means contraction.
