- Pound (GBP) rises after losses yesterday
- UK services PMI rises to 50.9
- Euro (EUR) falls despite a PMI upward revision
- Eurozone PPI is due later
The Pound Euro (GBP/EUR) exchange rate is rising, after losses in the previous session. The pair fell -0.2% in the previous session, settling on Monday at €1.1653 and trading in a range between €1.1445 – €1.1684. At 09:00 UTC, GBP/EUR trades +0.03% at €1.1656.
The euro is heading marginally lower as investors mull over the latest eurozone business activity figures. The eurozone composite PMI, which is considered to be a good gauge for business activity, was upwardly revised to 47.6, a four-month high, and up from October’s 35-month low of 46.5. This was also ahead of the preliminary reading of 47.1
The output revision came thanks to the second reading for the services PMI being upwardly revised to 48.7 from the preliminary reading of 48.2. While this is still below the 50 level, which separates expansion from contraction, it does show a modest improvement in the activity index.
Looking ahead, attention turns to the eurozone producer price index which is which measures inflation at the factory gate level. PPI is expected to fool 9.5% year on year in October after falling 12.4% in September. Falling PPI often points to further easing in consumer price inflation.
CPI eased to 2.4% year on year in October as it moved closer to the ECB’s 2% target. Cooling inflation fuels expectations that the ECB could start to cut interest rates early next year The market is currently pricing in a 25 basis point rate cut by the European Central Bank in April 2024.
Meanwhile, the pound is pushing higher after an upward revision to UK services activity data. The UK services PMI was raised to 250.9, up from the preliminary reading of 50.5 and ahead of the October level of 49.5.
This is a decent improvement in overall business activity as the composite PMI lifted to 50.7, up from 50.1.
With UK service providers back in expansionary territory, business activity has improved. However, this could create upward pressure on inflation, something that the Bank of England will be watching carefully.
Last week, Bank of England policymakers, including Governor Andrew Bailey, adopted a hawkish tone towards monetary policy. Bailey said that he will do whatever is necessary to get inflation back towards the 2% target. You can inflation is currently at 4.7% still over twice the central bank’s target.
