- Pound (GBP) falls after manufacturing contracted again
- The PMI was below 50 since August 2022
- Euro (EUR) rises after inflation data
- CPI cooled by less than expected
The Pound Euro (GBP/EUR) exchange rate was falling after a flat session yesterday. The pair settled on Thursday at €1.1680 and traded in a range between €1.1665 – €1.1697. At 16:00 UTC, GBP/EUR trades -0.05% at €1.1675.
The euro is pushing higher after eurozone inflation cooled by less than expected in February. The eurozone consumer price index cooled to 2.6% year on year last month, down from 2.8% in January. Economists had expected inflation to cool to 2.5%.
The continued easing of the cost of living in the eurozone will be a welcome development by the European Central Bank as it meets next week to discuss its monetary policy and announce this latest interest rate decision.
Many policymakers will be concerned that rapid wage growth is still putting pressure on prices in the service sector, where inflation only slowed slightly to 3.9% year on year in February, down from 4% a year earlier.
Core inflation, which strips out more volatile items such as food and fuel, fell more slowly than expected to 3.1% year on year, down from 3.3%.
The data comes as ECB policymakers continue to push back on the likelihood of an imminent rate cut. They have suggested that they are unlikely to loosen management policy before June. Policymakers have insisted they want to see more evidence of inflation cooling towards 2% before they start to cut.
While the ECB is not expected to cut rates next week, it will be releasing new forecasts, and it’s expected to cut its inflation forecast for the year from 2.7% to 2.3%.
The pound has fallen across the week amid a lack of fresh catalysts for investors to sink their teeth into. Meanwhile, today’s mover lower comes after data showed that UK factories struggled in February.
The latest manufacturing PMI rose to 47.5, up from 47, revised higher from a preliminary reading of 47.1 however, it remains below the 50 level, which separates expansion from contraction since August 2022
Delving deeper into the numbers, the employment sub-index sank to its lowest level since June 2020, excluding the pandemic. It was the weakest reading since June 2009 when the global financial crisis hit the UK economy.
