- Pound (GBP) is rising after PMI data
- Business activity grew by more than expected in August
- Euro (EUR) falls after ECB minutes
- Eurozone business activity saw a boost from the Olympics
The Pound Euro (GBP/EUR) exchange rate is rising after two days of losses. The pair fell -0.05% in the previous session, settling on Tuesday at €1.1712 and trading in a range between €1.1707 and €1.1744. At 15:00 UTC, GBP/EUR trades +0.27% at €1.1743.
The pound is rising after data show that the UK economy was holding up better than expected in August. In fact, private companies posted their strongest growth in four months as price pressures also cooled, suggesting that the economy is in a sweet spot for the Bank of England and the New Labour government.
The S&P’s global composite PMI index, which is a good gauge of business activity, rose to 53.4 in August, up from 52.8 in the previous month. This was above the 53 figure that was expected. Any level above 50 points to expansion.
Meanwhile, inflation related to companies’ costs cooled to the lowest level since 2021. This includes the service sector, which the Bank of England is closely monitoring.
Today’s data suggest that the UK is seeing a healthy rate of growth but is not feeding inflationary pressures.
Bank of England governor Andrew Bailey is due to speak tomorrow. His comments come as the market is not fully pricing in a rate cut until November.
The euro is falling well after the ECB minutes of the latest ECB meeting showed that the central bank is open to a September interest rate cut.
The meeting minutes showed that rate-setters were playing down concerns that inflation could remain persistent. The July meeting came as final July inflation figures rose to 2.9%, in line with May and June.
However, policymakers believe that the September meeting is a good time to reevaluate the level of monetary policy restrictions. The market is seeing this as a signal that the central bank will cut rates.
The market is pricing in a 90% probability of a25 basis point rate cut.
The dovish minutes overshadowed eurozone PMI data, which showed business activity received a boost from the Olympics. Service sector activity in France rose sharply; however, Germany’s business activity contracted for a second straight month.
