Eurozone PMIs Present EURGBP Opportunity
Eurozone PMIs Present EURGBP Opportunity
On Wednesday, we will see the European PMI prints for August. The usual split is expected between manufacturing and services data with manufacturing data expected to come in worse than services data. This is still due to the lopsided impact of covid restrictions and the late bounce-back demand for services post-social distancing. However, that impact is fading now as you can see from the chart below. Service sector growth is very near to stalling now.
On Wednesday, the services print is expected to fall again down to 50.5 from the prior July reading of 50.9. Remember, any reading below 50 shows contraction and will be a sure sign that the service sector bounce is failing.
Euro interest rate expectations
Expectations for eurozone interest rates have been set steady during August with short-term interest rate markets seeing a terminal rate of 3.87%. The rate is currently at 3.75%. The expectations for another rate hike are currently set at 63% for a 25bps rate hike to 4.00% on September 14.
What to watch for
A strong set of prints on Wednesday will give the ECB more confidence that the economy can take another rate hike. This should support the euro on intraday trade if that happens. The GBP is heavily bought and the retail sales miss last Friday could be a warning sign that the UK consumer is struggling under a higher rate path environment. So, this could mean a short sharp move higher in the EURGBP on Wednesday if the European PMI data surprises to the upside. Exceptions for the PMI prints are below with the minimum and maximum expectations as well.
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