GBP/EUR Exchange Rate Muted on Weak UK Construction PMI
UPDATE: The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range this morning as growth in the UK’s construction sector cooled faster than expected last month.
The latest survey revealed construction activity in September fell to its slowest pace since the adverse weather saw growth contract in March, with firms blaming ongoing Brexit uncertainty for lacklustre demand from clients.
UK #construction #PMI down to 52.1 in September, lowest since snow-hit March, amid broad-based slowdown (led by drop in civil engineering). Mixed signals on outlook as new orders picked up but future optimism sank to second-lowest since Feb 2013 https://t.co/jUeP3k5ZrF #GBP pic.twitter.com/euelo1zZWM
— Chris Williamson (@WilliamsonChris) October 2, 2018
Meanwhile the Euro is also facing pressure this morning as markets express concerns that Italy could be hit by punitive measures from the EU over its controversial budget.
GBP/EUR Exchange Rate Surges as UK Ready to Compromise on the Irish Border
UPDATE: The Pound Euro (GBP/EUR) exchange rate is surging higher today amid reports Theresa May is preparing to offer the EU a new proposal for the Irish border.
According to a senior government official the new proposals are a ‘compromise’ from the Prime Minister as will she her drop her opposition to new checks on goods moving between the Northern Ireland and the rest of the UK.
#UK – #EU negotiations: Theresa #May is preparing a significant new #Brexit offer on the #Irish backstop to the EU in an attempt to open the door to a deal, U.K. official tells Bloomberg https://t.co/7CQUKnYl3z via @bpolitics
— Howard Archer (@HowardArcherUK) October 1, 2018
This Irish border is currently the largest hurdle in the UK and EU finalising a Brexit agreement, so the news comes as a major relief to GBP investors.
The Pound Euro (GBP/EUR) exchange rate climbed around a cent during last week’s trading session as a controversial budget from Italy’s new coalition government knocked confidence in the single currency.
The government’s decision to target a budget deficit of 2.4% unnerved investors, as not only does it flout the EU’s 2% limit but it also raises concerns over Italy’s sizable debt pile, something which could trigger a downgrade from ratings agencies.
These concerns also undermined any chances for the Euro to strengthen on the back of some hawkish remarks from European Central Bank (ECB) President Mario Draghi regarding the Eurozone’s ‘vigorous pick-up in underlying inflation’.
Meanwhile Sterling sentiment was buoyed at the start of last week’s session by some optimism from the UK’s Brexit minister Dominic Raab on Monday as well as remarks by German Chancellor Angela Merkel on Tuesday.
However the Pound fell back from its best levels on Friday as the UK’s latest GDP figures saw Britain’s first quarter growth revised down to 0.1%.
Pound Euro (GBP/EUR) Exchange Rate Lifted by Surprise Rise in UK Manufacturing PMI Figures
The Pound Euro (GBP/EUR) exchange rate is pushing higher at the start of this week’s session, thanks to an unexpected rise in UK factory activity.
According to data published by IHS Markit, the UK’s manufacturing PMI rose from an upwardly revised 53 in August to 53.8 in September, beating forecasts it would slide to 52.5.
Modestly improved news on #UK #manufacturing sector as #PMI rises to 53.8 from 25-month low of 53.0 in August. But this was still 2nd lowest level since November 2016 & substantially below the 2017 peak of 58.3 in November 2017 (a 51-month high). Output up to 4-month high
— Howard Archer (@HowardArcherUK) October 1, 2018
The survey revealed activity in UK factories was buoyed by strong domestic demand for UK goods as well as increased orders from overseas, although many firms continued to express concerns that Brexit uncertainty is impacting their outlook.
Meanwhile the Euro is struggling to advance this morning despite the Eurozone’s latest labour figures revealing unemployment in the bloc had struck an almost decade-low in August.
This appears to be driven mostly by lingering concerns over Italy and how its new budget may impact the country’s debt sustainability.
GBP/EUR Exchange Rate Forecast: Sterling to Weaken as the UK’s Private Sector Slows?
Looking forward the Pound Euro (GBP/EUR) exchange rate is likely to face some pressure as the week goes on when the UK publishes the remainder of its PMI figures.
Economists predict both the construction and service sectors will have slowed in September, likely undermining growth in the manufacturing sector and resulting in a fairly weak end to the third quarter.
Further downside risks to Sterling may also come in the form of further political uncertainty, with the Conservative Party conference likely to highlight the growing divisions within Theresa May’s party over the direction of Brexit.
Meanwhile the release of the Eurozone’s latest retail sales figures may help to buoy the Euro later this week, with analysts forecasting August’s reading will reveal sales growth rebounded from -0.2% to 0.2%.