GBP/EUR – Pound Trends Lower on Underwhelming Manufacturing Data
A surprise improvement in December’s UK manufacturing PMI failed to offer any particular support to the Pound at the start of 2019.
While the headline PMI strengthened from 53.6 to 54.2, driven by a sharp increase in new orders, the underlying details of the report were less encouraging and the GBP/EUR exchange rate fell 0.3%.
With the business outlook still muted thanks to persistent Brexit-based uncertainty, the manufacturing sector looks set to come under increased pressure in the months ahead as business stockpiling eases.
This sense of uncertainty look set to persist for some time to come, as Theresa May’s divisive Brexit deal still appears on course for defeat when it comes before a parliamentary vote later this month.
GBP/USD – Improved UK Service Sector Growth to Boost Pound?
The GBP/USD exchange rate fell 0.8% as markets reopened following the New Year’s break. However, the mood towards the Pound could improve on Friday if the UK services PMI shows an improvement on the month.
As the service sector accounts for a greater proportion of UK gross domestic product compared to the manufacturing sector a stronger showing here could give GBP exchange rates a solid boost.
If the service sector fails to shake off the weakness seen in November and edges closer to contraction territory, however, this could weigh on the Pound.
Signs pointing towards a further easing in the UK GDP in the fourth quarter would give investors fresh incentive to sell out of the Pound, driving GBP exchange rates to shed further ground.
USD/GBP – Market Risk Aversion Benefits US Dollar
Worries over the health of the global economy helped to shore up US Dollar exchange rates this week, even as doubts over the prospect of future Federal Reserve monetary tightening mounted.
Speculation that the partial US government shutdown could soon be resolved also encouraged USD exchange rates to trend higher, in spite of lingering market wariness over the Trump administration’s volatile nature.
However, confidence in the US Dollar could prove short-lived if the latest ISM manufacturing index and non-farm payrolls data fail to impress.
Any fresh evidence that the US economy is coming under pressure would leave USD exchange rates exposed to downside pressure, especially if wage growth shows signs of easing.
EUR/USD – Euro Muted as Eurozone Economy Continues to Lose Momentum
December’s raft of Eurozone manufacturing PMIs offered the Euro little cause for confidence, confirming that economic momentum continued to fade in the final month of 2018.
Although the Italian manufacturing PMI bettered forecast, edging up from 48.6 to 49.2, this failed to encourage EUR exchange rates as the budget dispute continues to hang over the economic outlook.
Further losses could be in store for the single currency ahead of the weekend if the Eurozone consumer price index eases on the year.
Forecasts point towards the headline inflation rate easing to 1.8%, a softening which would put inflation below the European Central Bank’s (ECB) 2% target and diminish the odds of an interest rate hike.