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This week, the EUR/GBP pair has lost around 0.42%, dropping to 0.8535. As of this writing, it is trading at 0.8531 after the Eurozone’s PPI figure for July above expectations while the August Services PMI came in below expectations.
The same month’s British PMI numbers were better than anticipated, although they were still in contraction territory. Expectations for the Bank of England’s tightening remain constant. After investors were let down by August Eurozone Services PMIs, the EUR/GBP fell on Tuesday. The British ones, on the other hand, came in higher than anticipated, helping the Pound, while hawkish bets on the Bank of England are holding firm and giving the GBP more support.
Data on mid-tier economic activity from Europe and the UK is being digested by investors. In July, the Producer Price Index (PPI) performed better than anticipated. The actual number of -0.5% exceeded the previous -0.4% and was higher than the predicted fall of -0.6%.
Additionally, the European S&P Global and Hamburg Commercial Bank (HCOB) Services PMI fell short of expectations in August, coming in at 47.9 compared to the anticipated 48.3 and the previous 48.3. The Services index remained at 47.3 in the German surveys, in line with forecasts.
As a reaction, tightening expectations on the European Central Bank (ECB) and the German yields remain steady. The 2,5 and 10-year rates are holding their ground at the 3.03%, 2.59% and 2.60% areas with mild gains.
Meanwhile, world Interest Rates Probabilities (WIRP) indicates the odds of a 25bps hike in the upcoming Sep 14, 2023 declined to nearly 25%. For the following meetings, the odds of a 25 bps hike in October and December stand at 45% and 60%, and the hawkish bets on the ECB remaining low leave the door for further downside for the EUR.
On the British Side, Global/CIPS Composite PMI from August exceeded expectations and rose to 48.6, higher than the expected figure of 47.9 but lower than the previous 47.9. Still, it remains in contraction territory.
The Services survey’s result was 49.5, which was higher than the predicted 48.7 and lower than the previous 48.7.
Investors continue to undervalue the possibility that the Bank of England will raise interest rates by a range of 5.75–6% during this tightening cycle. After looking at the daily chart, it is clear that the EUR/GBP cross has a short-term negative bias.
