British Pound to Euro Exchange Rate Trends Near Worst Levels Despite Slowing Eurozone Inflation

Thursday’s data gave investors little reason to buy the British Pound to Euro (GBP/EUR) exchange rate. As the latest UK services stats worsened Britain’s short-term economic outlook, it had a bigger downside effect on GBP/EUR despite the Eurozone’s latest inflation disappointment.

Ultimately, due to weakness in both the Pound and the Euro, GBP/EUR has only seen modest losses this week. GBP/EUR opened the week at the level of 1.1357 and touched on a month and a half low of 1.1328 on Wednesday. Since then the pair has largely trended between that low and the week’s opening levels.

Britain’s economic outlook has been concerning Pound investors, especially following the publication of Markit’s UK services PMI for April. The figure was expected to have recovered from 51.7 to 53.5 but instead only rose to 52.8.

Analysts said it provided the latest sign that British growth was subdued at the beginning of Q2 2018. As services make up most of Britain’s economic output, this figure was generally seen to indicate that Britain’s economy in general was likely underperforming.

Markit’s chief economist, Chris Williamson, argued that the data pointed to a quarterly growth rate of just around 0.2% so far.

As a result, investors will be anticipating UK ecostats in the coming months for signs of things improving – or signs that things are worsening further.

It followed Britain’s manufacturing and construction PMIs earlier in the week. Manufacturing disappointed, and while construction beat forecasts this sector is too low influence to impact the Pound outlook considerably.

With Britain’s Q1 quarterly growth rate projected to have slowed to just 0.1% and now April growth looking underwhelming too, Bank of England (BoE) interest rate hike bets have plunged and the Pound has lost most of its recent support.

This has kept the Pound weak despite the Euro’s own weakness.

The Eurozone’s latest Consumer Price Index (CPI) projections have largely fallen short of expectations and caused many investors to give up on the possibility of a European Central Bank (ECB) interest rate hike any time soon.

Following underwhelming Italian and German inflation projections earlier in the week, the Eurozone’s overall inflation projections for April were published on Thursday and were even more disappointing.

The main yearly inflation rate was forecast to remain at 1.3%, but unexpectedly slipped to 1.2%. Meanwhile the core inflation rate was even more disappointing, falling from 1% to 0.7% rather than the forecast 0.9%.

With Eurozone inflation possibly even more subdued than previously expected, some analysts predicted that the European Central Bank (ECB) may be hesitant to hike Eurozone interest rates at all until 2020.

Still, the Eurozone’s economic growth outlook still appeared to be solid which ultimately helped the Euro to hold its ground and keep GBP/EUR low.

The Eurozone’s Q1 Gross Domestic Product projections met forecasts, coming in at 0.4% quarter-on-quarter and 2.5% year-on-year.

Amid a lack of notable UK data due for publication until next week’s anticipated Bank of England (BoE) policy decision, GBP/EUR movement is likely to be driven by Eurozone data until the end of the week.

Friday will see the publication of the Eurozone’s final April PMI results from Markit, as well as the bloc’s March retail sales results.

If the Eurozone data is solid, it could help keep the Pound to Euro exchange rate near its weekly lows. However, if it disappoints GBP/EUR may actually recover to above the week’s opening levels.