After ending the previous week 0.5% lower versus the euro, the pound has started this week on a stronger note. The pound euro exchange rate is €1.1420 after gaining 0.4% already this week as sterling builds on gains from March. The pound rallied 0.8% versus the euro across the month of March.
|What do these figures mean?|
When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written: 1 GBP = 1.13990 EUR
Here, £1 is equivalent to approximately €1.14. This specifically measures the pound’s worth against the euro. If the euro amount increases in this pairing, it’s positive for the pound.
Or, if you were looking at it the other way around: 1 EUR = 0.87271 GBP
In this example, €1 is equivalent to approximately £0.87. This measures the euro’s worth versus the British pound. If the sterling number gets larger, it’s good news for the euro.
The UK economic calendar was extremely light in the previous week, which meant that the pound drifted lower versus the euro. Once again, this week the UK economic calendar is very light, although there maybe just enough data points to keep pound traders interested.
Last week, the only piece of high impacting UK data was the release of UK fourth quarter GDP. As expected to UK economy grew a lacklustre 1.4%, making it among the slowest growing major economies.
|Why does poor economic data drag on a country’s currency?|
|Slowing economic indicators point to a slowing economy. Weak economies have weaker currencies because institutions look to reduce investments in countries where growth prospects are low and then transfer money to countries with higher growth prospects. These institutions sell out of their investment and the local currency, thus increasing supply of the currency and pushing down the money’s worth. So, when a country or region has poor economic news, the value of the currency tends to fall.|
Today UK manufacturing activity data is released. Analysts are expecting manufacturing activity to have dipped slightly in March to 54.7, down from 55.1 the previous month. Any figure above 50 is expansion. Manufacturing in the UK has been experiencing something of a revival since the Brexit weakened pound made UK prices more attractive for overseas buyers. UK manufacturing saw their orders pick up and have enjoyed the biggest boost in over a decade. There are early signs that this boost is just easing slightly. Should this be the case, the pound could fall versus the euro.
Although the euro had a stronger previous week, across the month of March it was broadly out of favour. A cautious European Central Bank (ECB) and concerns over slowing momentum of growth kept the euro out of favour. This week market participants will continue to focus on economic data, with Wednesday’s inflation reading set to be the highlight.
Inflation in the eurozone remains sluggish and continues to be the principal reason that the ECB refuses to tighten monetary policy. Any signs of an uptick in inflation could help underpin the common currency.
Today investors will be focusing on manufacturing activity, in the form of the purchasing managers index, from Germany and the eurozone itself. As concerns linger that growth momentum could be slowing, investors are expected to focus more than usual on this data.
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