UK Construction PMI Slump Limits Potential for Pound Sterling Euro (GBP/EUR) Exchange Rate Gains
UPDATE: The disappointing run of UK data continued on Tuesday as the UK construction PMI fell short of forecast, putting fresh pressure on the Pound Sterling to Euro (GBP/EUR) exchange rate.
As the PMI slumped from 55.8 to 52.9 in August confidence in the health of the domestic economy further came into question.
Even so, a weaker Euro (EUR) helped to limit the downside potential of the GBP/EUR exchange rate for the time being.
Latest Brexit Worries Weigh Heavily on Pound Sterling Euro (GBP/EUR) Exchange Rate
UPDATE: Although there was some speculation that Bank of England (BoE) Governor Mark Carney may be encouraged to extend his term a little longer this was not enough to shore up the Pound.
With Brexit talks still looking decidedly fraught markets do not relish the government’s ability to easily appoint a new BoE Governor in 2019.
As chief EU negotiator Michel Barnier adopted a less optimistic tone on the subject of Brexit this increased the pressure on the Pound Sterling to Euro (GBP/EUR) exchange rate.
Barnier’s comment that he is ‘strongly opposed’ to Theresa May’s proposals for post-Brexit trade encouraged investors to sell out of Pound Sterling (GBP), highlighting the difficulties that still face negotiators.
With the Chequers proposals looking increasingly unlikely to gain the approval of either the EU or backbench Conservatives the odds of a hard Brexit have mounted once again.
Pound Sterling Euro (GBP/EUR) Exchange Rate Slumps 0.6% as UK Manufacturing Sector Disappoints
An unexpectedly sharp downturn in August’s UK manufacturing PMI prompted the Pound Sterling to Euro (GBP/EUR) exchange rate to fall into a fresh slump.
While forecasts had pointed towards an easing in manufacturing sector growth investors were caught off guard as the headline index weakened from 54.0 to 52.8, a 25-month low.
This weakness was driven by a decline in new orders and softening output as foreign demand declined for the first time since April 2016, suggesting that the impact of the weaker Pound Sterling (GBP) has faded.
Confidence in the outlook of the wider UK economy was naturally dented by this softer showing, casting doubt over the strength of the third quarter gross domestic product.
What’s more, some fresh criticism of Theresa May’s Brexit proposals also put GBP exchange rates under pressure at the start of the week.
Italian Rating Downgrade Fails to Boost GBP/EUR Exchange Rate
Although ratings agency Fitch opted to lower its outlook on Italy from stable to negative ahead of the weekend this proved not to be enough to keep the Pound Sterling to Euro (GBP/EUR) exchange rate on a stronger footing.
Italian finance minister Giovanni Tria was quick to hit back at the decision, stating that the upcoming budget will not offer investors any cause for concern.
While some degree of scepticism remains, this helped to ease the negative bias of Euro (EUR) exchange rates, even as August’s Eurozone manufacturing PMI confirmed a slowing in sector growth.
And although the threat of a fresh Eurozone crisis continues to hang over the single currency the GBP/EUR exchange rate remains unable to capitalise at this juncture.
Weak UK Services PMI Could Drag Pound Sterling Euro (GBP/EUR) Exchange Rate Lower
Similarly disappointing UK construction and services PMIs for August could see the Pound Sterling to Euro (GBP/EUR) exchange rate extend its losses further.
Investors are likely to be particularly concerned if the services PMI shows signs of weakness, as the sector is responsible for more than three quarters of GDP.
While forecasts point towards a modest uptick on the month, with the index expected to rise from 53.5 to 53.9, the odds of a more positive showing have diminished.
Another downside disappointment could weigh heavily on the GBP/EUR exchange rate this week, further undermining confidence in the outlook of the UK economy.
With Brexit-based uncertainty looking set to drag on growth any weaker data is likely to put a significant dent in demand for the Pound.
Solid Eurozone PMIs to Limit Potential for GBP/EUR Exchange Rate Gains
August’s finalised raft of Eurozone services PMIs are likely to confirm a modest uptick on the month, leaving the Pound Sterling to Euro (GBP/EUR) exchange rate vulnerable to additional weakness.
Any evidence of softening consumer confidence in the latest Eurozone retail sales data could dampen the mood towards the single currency.
Unless the Eurozone continues to demonstrate resilience across the board the likelihood of a bias towards greater monetary policy tightening from European Central Bank (ECB) is likely to diminish.
Jitters over Italy and the ongoing Turkish financial crisis may also offer a boost to the Pound Sterling to Euro (GBP/EUR) exchange rate in the days ahead.