Pound Sterling Euro Exchange Rate News: GBP/EUR Stalls Following Shock Contraction in UK Service Sector

GBP/EUR Exchange Rate Pressured by Gloomy UK Services PMI

The Pound Sterling to Euro (GBP/EUR) exchange rate is rangebound this morning, with the pairing stalling following the release of a disappointing UK services PMI.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1715, virtually unchanged from this morning’s opening levels, but still over half a cent up from the week’s starting levels.

Pound (GBP) Stumbles as Services PMI Dives to Two-Year Low

The Pound (GBP) is struggling to find momentum against the Euro (EUR) this morning as markets react to a shock contraction in the UK’s service sector last month.

According to data published by IHS Markit, growth in the UK’s dominant service sector unexpectedly contracted last month, with the latest services index plummeting from 51.3 to 48.9.

This was well below forecasts of a modest slowdown to 50.9 and sees growth strike its worst levels since 2016.

The contraction was blamed on the ‘intense political uncertainty’ surrounding Brexit, which resulted in a sharp drop in demand from corporate clients and held back household spending.

Economists warn that the figures point to UK economy stagnating in the first quarter, with the risk of a potential downturn in the future.

Chris Williamson, Chief Business Economist at IHS Markit said:

‘A drop in service sector activity indicates that UK GDP contracted in March, with the economy stalling over the first quarter as a whole and at risk of sliding into a deepening downturn in coming months.’

Euro (EUR) Flat as Eurozone Sales Growth Slides

At the same time the Euro (EUR) is muted this morning following the publication of the Eurozone’s latest retail sales figures.

Eurostat reported that retail sales growth slowed from 1.3% to 0.4% in February, slightly beating forecasts of a drop to 0.2%.

EUR investors will be hoping that the sales downtrend doesn’t continue into March, for fears it could further drag on the Eurozone economy.

GBP/EUR Exchange Rate Forecast: Will May-Corbyn Talks Result in a Softer Brexit?

Looking ahead, the focus for investors is expected to quickly turn back to Brexit as Theresa May holds talks with Jeremy Corbyn in an effort to find a workable Brexit plan that will be accepted by Parliament.

This may prove positive for the Pound Euro (GBP/EUR) exchange rate going forward as analysts speculate that it will require the PM to make compromises on some of her Brexit ‘red lines’, likely resulting in a deal that keeps the UK more closely alighted with the EU.

Jim Reid, Head of Global Fundamental Credit Strategy at Deutsche Bank suggests:

‘She [May] is seemingly now prepared to back down on her prior red lines and also prepared to let Parliament decide on the outcome if she and Mr Corbyn can’t. Recall that the customs union option came within 3 votes of passage on Monday.’

Meanwhile, EUR investors will likely be focused on the release of the minutes from the European Central Bank’s most recent policy meeting, with the Euro potentially facing some pressure if they reveal further concerns from policymakers regarding the state of the Eurozone economy.

Matthew Andrews

Contact Matthew Andrews