GBP/EUR Flounders Near Worst Levels as UK Manufacturing Disappoints

Pound to Euro Exchange Rate Fails to Hold Recovery Attempt as UK Manufacturing Jitters Worsen Brexit Anxieties

UPDATE: The Pound (GBP) was weaker and weaker throughout the day, as investors digested the morning’s disappointing UK manufacturing PMI.

The data painted a concerning picture for Britain’s economic outlook.

Combined with ongoing Brexit and political jitters, it weighed heavily on Sterling and ultimately prevented the Pound to Euro (GBP/EUR) exchange rate from sustaining any notable gains today.

Pound Rebounds vs Euro (GBP/EUR) amid Eurozone Political Fears

While its gains have been limited due to persisting Brexit fears, the Pound Sterling to Euro (GBP/EUR) exchange rate is rebounding today following its worst month of losses in two years.

After opening last week at €1.13, GBP/EUR tumbled last week and closed the week closer to the level of €1.12.

During quiet trade this morning, GBP/EUR briefly touched on a fresh four-month low and its worst level since mid-January. At the time of writing though, GBP/EUR had rebounded slightly but its gains were only modest so far, trading at €1.1317 on the inter-bank market.

The Pound (GBP) lacks the appeal to register a solid recovery amid Brexit uncertainties, but trade tensions and Eurozone political jitters are still causing Euro (EUR) losses this morning.

Pound (GBP) Exchange Rate Rebound Limited as UK Manufacturing Unexpectedly Contracts

The Pound (GBP) rebounded slightly this morning, but its potential for gains was limited as various factors continued to weigh on Britain’s economic outlook.

As well as the persisting political uncertainties and hard Brexit fears still dominating the Pound’s outlook, demand for the British currency was dampened by this morning’s disappointing UK economic data.

Markit’s May UK manufacturing PMI was published, and rather than simply slowing to 52 as expected, the figure unexpectedly printed a contraction of 49.4.

According to Rob Dobson, Director at IHS Markit:

‘New order inflows declined from both domestic and overseas markets, as already high stock levels at manufacturers and their clients led to difficulties in sustaining output levels and getting agreement on new contracts.

Demand was also impacted by ongoing global trade tensions, as well as by companies starting to unwind inventories built up in advance of the original Brexit date.’

Euro (EUR) Exchange Rates Unappealing amid Eurozone Political Jitters

While the Pound’s (GBP) recovery has been limited, it has been able to avoid further losses more easily due to fresh weakness in the Euro (EUR) today.

While the Euro was not hit by the results of the EU elections as badly as some analysts feared, political developments since then have still made Euro investors anxious.

Due to the poor performance of Germany’s Social Democrats (SPD) in the EU elections, SPD Leader Andrea Nahles said she would resign. This has caused concern about the stability of Germany’s ruling coalition.

On top of this, Italian Prime Minister Giuseppe Conte will reportedly present an ultimatum to the shaky coalition to work harder on government action, or else he may resign.

These political factors, as well as continued trade protectionism from the US, are keeping the Euro from continuing to capitalise on Pound weakness.

Pound to Euro (GBP/EUR) Exchange Rate Traders Remain Focused on Politics

With Italy’s Prime Minister reportedly set to offer an ultimatum, and the leadership contest in Britain’s ruling Conservative Party heating up, politics is likely to have a big influence on the Pound to Euro (GBP/EUR) exchange rate this week.

UK Prime Minister Theresa May will resign as her party’s leader this month, and concerns are rising that her successor could make a hard Brexit more likely.

If hard or no-deal Brexit fears continue to ramp up, the Pound (GBP) could be in for yet another week of losses, even if the Euro (EUR) is weighed by political uncertainties in the Eurozone.

Still, while political factors could cause some key movement this week, the Euro may see stronger performance if upcoming Eurozone ecostats beat market expectations.

Many key Eurozone figures will be published throughout the week, including inflation and unemployment figures tomorrow, services PMIs and retail sales on Wednesday, and key growth rate figures on Thursday.

If this week’s Eurozone ecostats beat expectations, hopes about resilience in the Eurozone economy would rise.

Josh Jeffery

Contact Josh Jeffery