Pound Sterling to Euro (GBP/EUR) Exchange Rate Holds Ground After UK Services PMI Rebounds

Improved UK Services PMI Supports Pound Sterling Euro (GBP/EUR) Exchange Rate

Support for Pound Sterling (GBP) picked up this morning after December’s UK services PMI bettered forecasts, rebounding from 50.4 to 51.2.

As the service sector improved from November’s twenty-month low this gave investors cause for confidence, with the index moving further into expansion territory.

Even so, the underlying picture of the report did not prove quite as positive in nature as a sense of uncertainty among businesses continued to weigh on growth.

This is particularly concerning as the service sector accounts for more than three quarters of the UK gross domestic product, suggesting that the economy started 2019 on a weaker footing.

With the services PMI still showing lacklustre growth relative to its long-term average signs appear to point towards the UK economy having lost further momentum in the fourth quarter.

Euro (EUR) Exchange Rates Slump as Eurozone Inflation Misses Forecast

The Pound Sterling to Euro (GBP/EUR) exchange rate also benefitted from a disappointingly weak Eurozone consumer price index reading, limiting its weakness ahead of the weekend.

In a fresh blow to market hopes of a 2019 European Central Bank (ECB) interest rate hike the headline inflation rate slumped from 2.0% to 1.6% on the year.

With inflation now trending below the ECB’s 2% target once again the case for tighter monetary policy appears limited, especially in the face of weaker Eurozone growth data.

As December’s finalised raft of Eurozone PMIs also pointed towards softening economic activity the Euro (EUR) fell out of favour with investors.

Underwhelming German Retail and Factory Orders Data to Weigh on Euro (EUR) Exchange Rates

Demand for the Euro could diminish further on Monday if the latest German retail sales and factory orders figures fail to impress.

As the Eurozone’s powerhouse economy has already shown signs of softness investors are looking to see any evidence of resilience.

However, forecasts point towards a fresh contraction in factory orders in November as international demand for German products weakened in response to slowing global growth.

A weaker showing from both the retail and manufacturing sectors could weigh heavily on the single currency, with a softer German economy likely to drag on the strength of the Eurozone as a whole.

GBP Exchange Rates Vulnerable to Brexit Speculation as Parliament Reopens

Once Parliament returns from its winter recess next week GBP exchange rates are likely to see a fresh bout of volatility.

Speculation over Brexit looks set to pick back up as markets brace for the upcoming vote on Theresa May’s unpopular proposed Brexit deal.

As long as the Withdrawal Agreement remains on course to be shot down by MPs the upside potential of the Pound is likely to prove limited.

With UK data relatively thin on the ground in the early week the GBP/EUR exchange rate may struggle to find any fresh rallying points.

Louisa Heath

Contact Louisa Heath