Market Data 
- EUR/GBP edges lower ahead of potentially market-moving PMI data on Thursday.
- The pair has been rising since July when monetary policy expectations shifted in favor of the Euro.
- Recent data shows a rise in the Eurozone Current Account surplus and Construction Output but an increase in UK government borrowing.
EUR/GBP is marginally lower, in the 0.8520s on Wednesday as traders await key releases in the form of Purchasing Manager Indexes (PMI) – surveys gauging levels of activity in major industry sectors – for both the Eurozone and the UK, out on Thursday.
EUR/GBP started trending higher in July after the Euro (EUR) appreciated against the Pound Sterling (GBP) due to shifting monetary policy expectations.
Whilst the European Central Bank (ECB) adopted a data-driven approach amid still-high inflation in the Euro Area, the Bank of England (BoE) became much more open to the idea of cutting interest rates after inflation in the UK kept down at the BoE’s 2.0% target level. This can be seen on the comparison graph below.
The consistently lower inflation in the UK indicates the BoE will probably cut interest rates more than the ECB going forward, and because lower interest rates are negative for the currency this has led to a depreciation of the Pound Sterling (GBP) against the Euro – resulting in a rise in EUR/GBP.
EUR/GBP and recent macroeconomic data
The latest data out of the Eurozone showed a rise in the Current Account surplus to €52.4 billion in June 2024 from €32.4 billion a year earlier. The data is overall positive for the Euro (EUR) since consistent Current Account surpluses are indicative of higher exports than imports which increases net demand for a currency.
Moreover, on a seasonally adjusted basis, the Current Account surplus in the Eurozone beat estimates, rising to €50.5B surplus in June when economists had expected only €37.0B, from €37.6B in May, according to data from Eurostat.
Other data from the Eurozone revealed that building work is on the rise, with the Construction Output rising 1.0% YoY in July after declining 2.4% in June and by 1.7% on a seasonally adjusted basis after registering a 0.9% decline in June.
The monthly report on the German economy from the Bundesbank, meanwhile, revealed an optimistic outlook with German economic output likely to “increase slightly in Q3.”
UK data, meanwhile, showed a greater-than-expected rise in government borrowing in July, which is overall negative for the UK’s fiscal position. Much depends on how the government reacts to the data but continued borrowing can erode the value of a country’s currency.
Public Sector Net Borrowing in the UK (excluding public sector banks) climbed to £3.1 billion in July 2024 from £1.3 billion in the same month the previous year and significantly exceeding market expectations of £1.5 billion, according to Trading Economics.
“July’s public finances figures continued the recent run of bad news on the fiscal position, with public borrowing on track to overshoot the OBR’s 2024/25 forecast of £87.2 billion by £4.7 billion. Even if this overshoot does not persist, we expect the Chancellor to raise taxes and increase borrowing at the Budget on 30th October,” says Alex Kerr, UK economist at Capital Economics.
