As of Wednesday, EUR/GBP was around 0.8635, with minimal fluctuations as investors examined updated macroeconomic data from the Eurozone and the UK.
Currency pairs have mostly held steady, even with upward revisions to the Eurozone’s May Purchasing Managers’ Index (PMI) data. The revised HCOB service PMI now stands at 47.7, up from an initial estimate of 46.4, while the comprehensive PMI has been adjusted to 48.5 from the preliminary 47.5. These updated figures suggest the contraction in private sector activity isn’t as dire as previously thought, although it still marks the steepest decline since November 2024.
Meanwhile, inflation metrics are reinforcing the notion of a tighter monetary policy. The Eurozone’s Producer Price Index (PPI) data revealed a month-on-month rise of 0.6% in April, surpassing market predictions, following a notable 3.4% increase in March. Year-on-year, producer prices rose by 4.9%, a significant jump from the prior month’s adjusted 2%. Additionally, the euro zone’s core Harmonized Index of Consumer Prices (HICP) showed an increase of 2.5% year-on-year for May, up from 2.2% in April and exceeding expectations of 2.4%.
In light of this, several policymakers from the European Central Bank (ECB) have maintained a hawkish stance. Olli Rehn noted that a rate hike in June could serve as an insurance against rising inflation risks. Gediminas Simkus emphasized the urgency of taking action to curb price pressures, while Pierre Hounche stressed the ongoing need for tighter monetary policy.
In the UK, PMI data has also seen upward revisions. The S&P Global UK Services PMI was revised to 49.3, up from a preliminary 47.9, and the Composite PMI improved to 49.7 from an initial figure of 48.5. Despite these revisions, both metrics still fall below the crucial benchmark of 50, indicating the first contraction in business activity in over a year.
Regardless, statements from Bank of England (BoE) officials have provided some support for the British pound (GBP). Megan Green, a member of the BoE’s policy committee, mentioned that the chances of further interest rate increases are growing, highlighting the importance of response speed as much as the scale of any hike. BoE Governor Andrew Bailey had previously expressed the bank’s commitment to achieving a 2% inflation target.
The balance between strong hawkish sentiments from both the ECB and the BoE has kept EUR/GBP trading within a tight range.
