- Pound (GBP) rises versus euro after PMI upward revision
- BoE’s Bailey warns over outlook
- Euro (EUR) falls on recession fears
- Eurozone retail sales, ECB minutes due
The Pound Euro (GBP/EUR) exchange rate is heading higher on Wednesday extending gains for the third day. The pair gained +0.28% on Tuesday, settling at €1.1645, after trading between €1.1594 – €1.1708. At 05:45 UTC, GBP/EUR trades +0.07% at €1.1653.
The pound fell in the previous session but less so than the euro. The pound came under pressure despite the services PMI being upwardly revised. The services PMI printed at 54.3 in June, up from the preliminary reading of 53.4.
Instead, political drama unfolding was hurting demand for sterling. UK finance minister Rishi Sunak and UK health secretary Sajid resigned, throwing Prime Minister Boris Johnson’s government into crisis. This comes after months of damaging headlines and weeks after the PM scraped through a vote of no confidence. So far, Boris Johnson is holding onto power, but it is doubtful he will last long.
The news of the resignations came later in the day yesterday. The Pound was already very depressed owing to the risk-off mood and recession fears. The BoE’s financial stability report saw the BoE Governor warn that the UK economic outlook has deteriorated significantly.
The euro plunged in the previous session and was the weakest major currency. Recession fears sent the common currency lower. PMI data for individual countries was weaker than expected. The Eurozone composite PMI fell to a 16-month low.
Concerns over Russia’s gas supply sent gas prices to a three-month high, fuelling inflation fears further. The ECB is expected to start hiking interest rates in July. However, they will be doing so as the economy heads into recession.
Today the minutes of the latest ECB meeting will be released. Investors will be looking for clues over whether the central bank plans to raise rates by 25 or 50 basis points. Eurozone retail sales are also due.