After initially sliding during the Asian session, the pound has clawed back its losses against the euro this morning following the publication of the Eurozone’s latest GDP figures.
This saw euro investors left disappointed as data revealed that the Eurozone economy only expanded by 0.3 per cent in the second quarter, falling short of forecasts that growth would hold at 0.4 per cent.
However, preventing a run on the euro this morning was the accompanying inflation figures, with price growth in the bloc unexpectedly rising to 2.1 per cent in July, placing it comfortably within the European Central Bank’s target range.
Lending further support to the euro was the Eurozone employment figures, with euro investors welcoming a revision to May’s data which saw the bloc’s jobless figures revised to an almost decade low of 8.3 per cent.
Meanwhile trade in the pound remains fairly muted this morning as pound investors remain reluctant to price in any major moves ahead of the Bank of England’s (BoE) rate decision on Thursday.
Economists overwhelming forecast that this week’s policy meeting will result in the bank implementing a rate hike in August, but some uncertainty surrounding the BoE’s forward guidance is giving some investors pause for thought.
The majority of analysts are expecting the hike to be a one-off, with the bank likely to take a dovish stance towards any additional hikes in the foreseeable future, potentially limiting any gains for the pound.
In the meantime however, the pound euro exchange rate may see some limited movement on Wednesday, with the release of the latest PMI data.
In terms of the pound, the UK’s manufacturing PMI is likely to prove negative, with an expected slowdown in factory activity in July likely to reflect poorly on the UK currency.
At the same time, an expected lift in the Eurozone factory activity PMI may lend some support to the euro, although with activity only forecast to have slightly picked up from the 19-month low struck in June, any gains may be limited.