The Pound tumbled by around a cent against the Euro last week as investors reacted to data showing that UK private sector output cooled to a three-year low during April.
UK Private Sector Slows to 3-Year Low
Sterling’s slide started when markets reopened following the May Day Bank Holiday on Tuesday. The April manufacturing PMI report detailed a shock slump in factory output, with the indicator sliding unexpectedly from 50.7 to 49.2. This was the first time the index had fallen below the 50.0 mark that separates growth from contraction since March 2013 and subsequently GBP/EUR fell towards 1.27.
On Wednesday it was announced that construction activity also slowed to its worst level since 2013 as firms cut back on new projects ahead of June’s EU referendum. The PMI sunk from 54.2 to 52.0 and this also put pressure on GBP/EUR.
After striking a fortnightly low of 1.26 on Wednesday, GBP/EUR recovered slightly on Thursday even though service sector data disappointed. The significant services PMI, which accounts for over 75% of UK GDP, fell from 53.5 to a three-year low of 52.3, thus confirming that private sector output plunged to its lowest level in three years last month.
Week Ahead
The Pound to Euro exchange rate is unlikely to fluctuate too strongly this week unless certain data releases deviate significantly from the market consensus.
UK sentiment is probably not going to improve on Wednesday when industrial production is set to decline -0.4%. However, having witnessed a hat trick of negative domestic prints last week, traders may not have much appetite to sell Sterling too heavily this time out.
BoE’s ‘Super Thursday’
The Bank of England’s ‘Super Thursday’ trio of announcements on Thursday is likely to see policymakers strike a neutral tone ahead of the EU referendum – there are simply too many permutations to make any accurate alterations to the bank’s growth, inflation and interest rate forecasts. However, Sterling could tumble if the minutes report reveals that one or more policymakers are prepared to cut rates further at this juncture.
The highlight of the European docket looks to be Friday’s first quarter Eurozone GDP print, which is tipped to see Q1 growth confirmed at an encouraging 0.6%. Anything lower could hurt the Euro; anything higher could give the common currency a boost.
Heads Up
Summary of major upcoming data releases that we think may move the market.