GBP/EUR Exchange Rate Stumbles on Weak Manufacturing Growth
UPDATE: The Pound Sterling to Euro (GBP/EUR) exchange rate remains of the defensive this afternoon, with the pairing’s losses extending to 0.6% as the UK’s latest Manufacturing PMI continues to exert downward pressure on Sterling
The latest index underscores how Brexit uncertainty continues to weigh on the UK economy, with investors warning that it bodes poorly for the first quarter in 2019.
Conversely the Euro remains buoyed by the rise in core inflation, despite some analysts warning it’s unlikely to be sustained.
GBP/EUR Exchange Rate Drops on Lacklustre Manufacturing PMI
The Pound Sterling to Euro (GBP/EUR) exchange rate beat a hasty retreat this morning as markets were left disappointed by the UK’s latest manufacturing PMI.
At the time of writing the GBP/EUR exchange rate has dropped 0.5%, striking a new one-week low.
Pound Sterling (GBP) Slumps as UK Factory Growth Disappoints
The Pound (GBP) is retreating this morning, following the release of some weaker-than-expected growth in UK factories at the start of 2019.
According to data published by IHS Markit, the UK’s manufacturing PMI slumped from 54.2 to 52.8 in January, missing expectations of a more modest slide to 53.5 and striking a new three-month low.
#PMI indicates #UK #manufacturing sector lost momentum in January but still benefiting to some extent from stockbuilding & input buying to guarantee supplies amid heightened #Brexit uncertainties. PMI down to 3-month low of 52.8 from 6-month high of 54.2 in December
— Howard Archer (@HowardArcherUK) February 1, 2019
The latest survey revealed that while purchasing activity has increased in January as factories stockpile inputs in preparation for Brexit, manufacturing output and employment stumbled at the start of the year.
Adding to the pressure on Sterling was also the warning from analysts that the sector risks falling in recession in the near future unless the economic situation shows signs of improvement.
Rob Dobson, Director at IHS Markit said:
‘Confidence about the outlook slipped to a 30-month low, often reflecting ongoing concerns about Brexit and signs of a European economic slowdown. With neither of these headwinds likely to abate in the near-term, there is a clear risk of manufacturing sliding into recession.’
Euro (EUR) Exchange Rates Bolstered Following Surprise Pick-up in Core Inflation
At the same time, the Euro (EUR) found support on Friday after EUR investors cheered a surprise pick-up in Eurozone core inflation.
While the bloc’s latest CPI figures revealed that headline inflation continued to weaken in January, sliding from 1.6% to 1.4%, core inflation proved more resilient as it unexpectedly climbed from 1% to 1.1%.
Signs that underlying inflation remains strong offered a much needed lift to the Euro, which has suffered in recent week amid increasing signs that economic activity in the Eurozone is slowing. leaving some hope alive that the European Central Bank (ECB) could still raise interest rates in 2019.
GBP/EUR Exchange Rate Forecast: Brexit Uncertainty to be Reflected in BoE Outlook?
Looking ahead to next week’s session, the Pound Euro (GBP/EUR) exchange rate is likely to be driven by the Bank of England’s (BoE) first policy meeting of 2019.
While no policy changes are expected from the bank this month, renewed Brexit uncertainty and growing signs that global growth is slowing is likely to result in the BoE striking a dovish tone on Thursday, likely driving losses in Sterling if it indicates its next rate hike may be delayed until 2020.
Potentially heaping pressure on GBP exchange rates at the start of the week will also be the publication of the UK’s remaining PMI figures as economists forecast growth in the services sector will have remained subdued in January.
Meanwhile EUR investors may focus on the release of the Eurozone’s latest retail sales figures with the Euro poised to slide if sales growth slowed in December as forecast.