GBP/EUR: Pound Stumbles vs Euro On Dovish Sounding BoE
  • Pound (GBP) advances ahead of BoE rate decision
  • Economic picture has improved, inflation above target
  • Euro (EUR) looks to German IFO economic sentiment data
  • Eurozone composite PMI at 15 year high

The Pound Euro (GBP/EUR) exchange rate is ticking higher on Thursday extending gains from the previous session. The pair settled +0.2% higher at €1.1703 after briefly spiking up to €1.1726 a two and a half month high.  At 05:45 UTC, GBP/EUR trades +0.04% at €1.1707.

The Pound pushed higher in the previous session following the release of the Purchasing Managers Index for both the manufacturing sector and the services sector. Activity In the manufacturing sector eased slightly but still managed to top forecasts. Meanwhile, the services sector also saw growth slow slightly. However, price pressures built with input costs matching June 2008’s record high – raising concerns over inflation.

Attention will now shift to the Bank of England monetary policy meeting. The BoE are not expected to adjust monetary policy. However, the economic picture in the UK has improved considerably since the last BoE meeting. Indoor hospitality re-opened on 17th May, the composite PMI, often considered a good gauge for business activity hit a record high in May, just cooling very slightly in June. The labour market recovery is also encouraging with unemployment falling to 4.8%. Meanwhile inflation has surged to 2.1%, above the BoE’s 2% target.

Investors will be keen to see whether the more upbeat data prompts the UK central bank to look towards tightening monetary policy sooner. A more hawkish tone from the central bank could boost the Pound.

The Euro showed resilience in the previous session supported by a slightly weaker US Dollar and by upbeat PMI data. The Eurozone Composite PMI surged to a 15 year high in June as covid cases dropped and economies reopened in the bloc.

The upbeat data comes following strong consumer confidence numbers in the earlier in the week suggesting that the Eurozone economy is ramping up strongly.

Today attention will turn specifically to Germany, the largest economy in the Eurozone with IFO economic sentiment data. Analysts are expecting morale to tick higher in June as the post covid recovery continues.