Euro Exchange Rates Under Pressure: Pound and Dollar Both Boosted, ECB Rate Decision Dominates the Outlook

EUR-USD was back near November lows after downward revisions to area services data pointed to fresh recovery struggles across the bloc.

"The services PMI got revised lower to 54.2 in July, still growth terrain by keeping above 50, from an initial print of 54.4. The cooler reading followed another wrong step lower in inflation last week to 0.4 percent, a near five-year low, and come ahead of the ECB’s meeting on Thursday," says Joe Manimbo at Western Union.

The following EUR currency levels are noted in the wake of the data:

• The euro dollar exchange rate (EUR/USD) is 0.06 pct lower on a daily basis at 1.3375.
• The euro to pound exchange rate (EUR/GBP) is 0.02 pct higher at 0.7941.
• The euro to Australian dollar (EUR/AUD) is 0.86 pct higher at 1.4430.
• The euro to Canadian dollar (EUR/CAD) is 0.06 pct higher at 1.4619.

Please be aware that all mid-market rates are subject to discretionary charges issued by your bank. An independent FX provider can, in many instances, deliver up to 5% more currency owing to their positioning in the markets. Please learn more here.

Euro sold ahead of ECB Event Risk

Markets are clearly positioning for a dovish ECB outcome tomorrow while expecting President Draghi to strike a cautious tone.

According to Manimbo, "the euro would continue its southerly grind lower should bank President Mario Draghi use stepped up dovish vocabulary that suggests a growing likelihood of stronger stimulus in the months ahead. A more dovish outlook for the ECB would stand in stark contrast to the Fed which appears two meetings away from ending its bond-buying stimulus."

Carl Hasty at Smart Currency Business reckons, "while no further interest rate changes are expected this month, the rhetoric at the press conference will help traders to gauge the central bank’s view on the effectiveness of measures so far and how likely further action is."

"We also expect Italian growth data on Wednesday. Although it has indicated contraction for the better part of this year, Wednesday’s data is expected to show growth of 0.1% and improving figures would lend strength to the euro," says Hasty.

Pound sterling rallies against euro

The GBP is one of the bigger winners against the shared currency after a soft period as of late; indeed the UK unit is threatening to retake much of the lost ground.

Driving sterling higher is Britain’s services PMI which jumped to an eight month high of 59.1 in July, well north of forecasts of 57.9 from 57.7 in June.

"Positive U.K. data help bring the Bank of England, which meets Thursday, a step closer to raising borrowing rates from crisis lows. Many expect the Bank of England (BOE) to lift borrowing rates by early 2015, a hawkish outlook that can help brake sterling’s recent fall from multiyear highs. The current market looks ripe for American importers after the USD was dealt a short-term sentiment blow in last week’s cooler U.S. hiring report," says Manimbo.

Elsewhere the dollar remains firm as it continues to enjoy its summer run higher.

The dollar benefited from a round of downbeat data from China and Europe and was further supported by America’s improving fundamental backdrop.

"Still, U.S. yields were back to being droopy, a sign that a Fed rate hike remained on a far horizon. The buck should find a fundamental driver in U.S. reports today at 10 a.m. ET on factory orders and services growth. Upbeat outcomes should at least get the dollar in closer range of recent highs," says Manimbo.