The Pound Euro exchange rate settled on Wednesday -0.57% lower at €1.1154 after bearish comments from Bank of England Governor Andrew Bailey.
At 06:15 UTC, GBP/EUR is trading -0.1% at €1.1131 as investors look ahead to the release of manufacturing and service sector purchasing mangers index (PMI) for both the UK and the UK.
GBP: BoE Negative Rates Comment Drags on Pound
After last month’s worst on record PMI readings for both the service and manufacturing sectors, investors will be hoping for an improvement in May. Analysts are expecting activity in the dominant service sector to have picked up to 25 on the index in May, up from 13.4 in April. Manufacturing activity is expected to have increased to 36, up from 32.6. The level 50 separates expansion from contraction.
Whilst an improvement on last month’s awful data is very likely, lockdown restrictions have only eased slightly so activity will remain very low. The data is expected to show a substantial slowdown in the pace of economic contraction. However, both sectors remain firmly in recession territory
The releases come after BoE Governor Andrew Bailey confirmed that negative interest rates were under review for the first time in the central bank’s 324-year history. Negative interest rates make it expensive for banks to hold cash and therefore encourage more lending. It is a tool to help stimulate the economy amid the coronavirus crisis. However, the prospect of negative rates continues to drag on the Pound.
EUR: Eurozone PMI To Rebound?
Eurozone flash PMI’s will also be in focus today. The service sector PMI is expected to rise to 25 from last month’s record low of 12, reflecting people slowly and cautiously returning to work. However, activity levels are expected to remain subdued for the foreseeable future amid strict social distancing rules.
Eurozone manufacturing activity showed resilience in April, so analysts are expecting a smaller rebound in May as factories reopen.
The Euro still remains well supported following the announcement of the European Union recovery fund and German ZEW sentiment data yesterday. The figures revealed a bigger than expected rise in German economic expectations to 51 in May, up from 28.2 in April. Optimism is growing that there will be an economic turnaround from the summer onwards, boosting the Euro.