EUR/GBP recovery remains capped below 0.8665 with Eurozone inflation on focus

The Euro crawls higher against the Pound but remains capped below 0.8665.
UK and Eurozone Manufacturing PMIs and Eurozone HICP figures might determine the pair's direction later today.
Heightened hopes of a BoE rate cut in August are increasing bearish pressure on the GBP.

Guillermo Alcala FXStreet

The Euro extends its recovery against the Sterling for the second consecutive day on Friday. Still, price action remains contained below the 0.8665 with investors awaiting manufacturing activity figures from the Eurozone and the UK ahead of July’s final Eurozone HICP figures.

The Pound remains on its back foot ahead og the final Manufacturing PMI release, which is expected to confirm that the sector’s activity improved to 48.2 from 47.7 in the previous month, but still at contraction levels.

In the Eurozone, final PMI is likely to confirm that manufacturing PMI improved to 49.8 in July from 49.5 in June, but more importantly, Consumer Prices are seen easing below the ECB’s 2% rate, a positive development in the context of increasing economic and trade uncertainty.

With both economies facing similar hurdles, the monetary policy divergence is weighing the Pound against the Euro. The softer consumption and employment figures seen in the UK have heightened speculation that the BoE might cut rates after its August meeting, while the ECB rhetoric suggests that the bank might have reached its terminal rate.

Economic Indicator

S&P Global Manufacturing PMI

The Manufacturing Purchasing Managers Index (PMI), released on a monthly basis by S&P Global, is a leading indicator gauging business activity in the UK’s manufacturing sector. The data is derived from surveys of senior executives at private-sector companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the Pound Sterling (GBP). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for GBP.

Economic Indicator

HCOB Manufacturing PMI

The Manufacturing Purchasing Managers Index (PMI), released on a monthly basis by S&P Global and Hamburg Commercial Bank (HCOB), is a leading indicator gauging business activity in the Eurozone manufacturing sector. The data is derived from surveys of senior executives at private-sector companies from the manufacturing sector. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the Euro (EUR). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for EUR.

Economic Indicator

Harmonized Index of Consumer Prices (YoY)

The Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

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