Euro nudges up against British Pound with Eurozone and UK PMIs in focus

The Euro (EUR) edges up against the British Pound (GBP) for the second consecutive day on Wednesday, although it remains halfway within recent ranges, with trading volumes at low levels, and investors awaiting Purchasing Managers Index (PMI) data from the UK and the Eurozone. The EUR/GBP trades at 0.8580 at the time of writing, after bouncing from 0.8568 on Tuesday.

Later during the European session, the Eurozone’s Preliminary HCOB PMI figures from September are expected to show that the services sector’s activity edged up to 51.7, from 51.6 in August, and that the manufacturing sector remained steady at 52.7, highlighting a moderate expansion.

Before that, German PMIs are forecast to show solid manufacturing growth and a moderate improvement in the services sector, which is expected to have stalled in August, after five months of contraction.

In the UK, the S&P Global Manufacturing PMI is seen slowing down to 51.4 from August’s 51.7, and the Services PMI easing to 52.0 from 52.5 in the previous month, in both cases, showing levels consistent with a mild expansion.

A hawkish ECB and lower Oil prices are supporting the Euro

The Euro is drawing some support from the recent pullback in Oil prices. The price of the barrel of Brent Oil has dropped to $95.00, more than $10 below last week’s highs, providing some relief to the Oil-importing Eurozone economies.

Apart from that, the European Central Bank (ECB) hiked interest rates for the second time this year in September and hinted at further monetary tightening if inflation remains at high levels, which has provided additional support to the Euro. The Bank of England, on the contrary, left interest rates on hold last week, although three committee members voted for a quarter-point hike, and Governor Bailey left the door open for some monetary tightening, which contained the negative impact on the Pound.

Euro bulls, however, remain wary of the uncertain political situation in Germany, with Chancellor Friedrich Merz under question after the disastrous results in state elections last weekend. Beyond that, France's public debt has reached its highest level since 1978, which is calling the attention of the rating agencies and threatens to develop into a full-blown credit crisis.