Euro trades cautiously against British Pound ahead of EU-UK flash PMI data

The Euro remains broadly sidelined against the British Pound in the countdown to the preliminary EU-UK PMI data.
Eurozone’s overall business activity is expected to have contracted again.
The UK Composite PMI is seen continuing to expand but at a moderate pace.

Sagar Dua FXStreet

The Euro (EUR) trades with caution against the British Pound (GBP) around 0.8650 during the European trading session on Thursday. The cross is expected to remain broadly on the sidelines, with investors awaiting the preliminary Eurozone-United Kingdom (UK) preliminary private sector Purchasing Managers’ Index (PMI) data for May.

Eurozone’s HCOB Composite PMI is expected to have contracted again at a steady pace to 48.8. A figure below 50.0 is considered a contraction in the business activity. The Manufacturing PMI is estimated to have expanded again, but at a moderate pace to 51.9 from the previous reading of 52.2. The Services PMI is expected to have contracted again, but at a slightly moderate pace to 47.7.

Signs of further weakness in the Eurozone PMI data would diminish the appeal of the Euro. On the monetary policy front, investors await fresh cues regarding whether the European Central Bank (ECB) will make any adjustment in the interest rate policy in June amid growing inflationary pressures in the wake of elevated oil prices.

ECB policymaker and the head of Belgium's central bank, Pierre Wunsch, said on Wednesday that the central bank needs to act at some point, as “we are at the beginning of an inflation problem”.

Meanwhile, the flash UK S&P Global Composite PMI is seen arriving lower at 51.7 from 52.6 in April due to a slowdown in growth in both manufacturing and the service sector activities. The UK Service PMI is estimated to have expanded again, but at a moderate pace to 51.8 from the previous reading of 52.7.

Economic Indicator

S&P Global Services PMI

The Services Purchasing Managers Index (PMI), released on a monthly basis by S&P Global, is a leading indicator gauging business activity in the UK’s services 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), 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 services economy is generally expanding, a bullish sign for the Pound Sterling (GBP). Meanwhile, a reading below 50 signals that activity among service providers is generally declining, which is seen as bearish for GBP.

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