The EUR/GBP currency pair pared its intraday gains and hovered around 0.8430 during Wednesday’s European session, following the release of disappointing HCOB Purchasing Managers Index (PMI) data from the Eurozone and Germany. The Eurozone Services PMI fell to 52.9 in August, down from 53.3 the previous month. The Composite PMI also declined to 51.0, missing expectations and dropping from the prior reading of 51.2, which was anticipated to hold steady.
In Germany, the HCOB Services PMI decreased to 51.2 in August, slightly below market expectations of no change from the previous figure of 51.4. The Composite PMI also fell to 48.4, just short of the expected and previous reading of 48.5.
The Euro’s upside potential against the British Pound may be capped by mounting speculation that the European Central Bank (ECB) will implement an interest rate cut in September. This would represent the ECB’s second rate cut since it began its policy normalization process in June. ECB policymakers remain optimistic that inflation will return to the 2% target by 2025.
Conversely, the EUR/GBP pair may face additional pressure as traders predict no rate cut by the Bank of England (BoE) in September, although a 25 basis points reduction is expected in November.
The global economic outlook has become more uncertain following the weak PMI data from the world’s two largest economies. Market participants are expected to scrutinize the PMI data from the United Kingdom later today for further insights.
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