Euro (EUR) Struggles against Pound (GBP) and US Dollar (USD) after Services Sectors Weaken

The Euro to Pound Sterling (EUR/GBP) and Euro to US Dollar (EUR/USD) exchange rates weakened following the publication of below-forecast Manufacturing and Services PMI for the Eurozone and its largest economies. As the data increases the odds of the ECB rolling out full-scale quantitative easing measures in the near future, the Euro softened across the board. As stated by economist Marco Valli notes; ‘New monetary stimulus is only a matter of time. Today’s data tilt the balance toward the ECB announcing new easing measures already at the December meeting.’

Similarly, Markit economist Chris Williamson observed; ‘Policymakers will no doubt be disappointed that recent announcements and stimulus measures are showing no signs of reviving growth. The deteriorating trend in the surveys will add to pressure for the ECB to do more to boost the economy without waiting to gauge the effectiveness of previously-announced initiatives.’

The Euro to Pound Sterling exchange rate fell to a low of 0.7974 and the Euro to US Dollar exchange rate dropped to a low of 1.2502. The Euro’s declines against the Pound were exacerbated as the UK released an encouraging retail sales report. Meanwhile, the US Dollar put on a patchy performance as the pace of consumer price gains in the US was shown to have stagnated in October. Consumer prices were unchanged on the month in October, leaving the annual rate of CPI at 1.7%. While this was a better result than the forecast drop to 1.6%, the subdued price pressures in the US could prevent the Federal Reserve from increasing interest rates in the early part of next year. The report saw strategist Dan Greenhaus note; ‘The decline in energy prices simply hasn't yet bled through to the core. Inflation, while below the Fed's target, is certainly not "too low," today's flat headline reading furthers the debate surrounding potential Fed activity.’ The US Dollar also came under pressure as initial jobless claims came in at 291,000 in the week ending November 15 rather than the 284,000 expected.

Before the weekend several factors could influence the direction taken by the Euro to Pound (EUR/GBP) and Euro to US Dollar (EUR/USD) exchange rates. While the Eurozone’s Consumer Confidence index could impact the Euro, investors will also be focusing on a speech to be given by ECB President Mario Draghi in Frankfurt and the UK’s public spending data.