Pound Sterling Euro Exchange Rate News: GBP/EUR Muted as UK Factory Growth Slumps to Six-Year Low

GBP/EUR Exchange Rate Muted as UK Factory Growth Slumps

The Pound Sterling to Euro (GBP/EUR) exchange rate is rangebound this morning as some poor UK manufacturing data trimmed the pairing’s initial gains.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1151, leaving the pairing virtually unchanged from this morning’s opening rate, having retreated around half a cent from its best levels.

Pound (GBP) Undermined by Weak PMI Figures

The Pound (GBP) has retreated from its initial gains against the Euro (EUR) this morning, whilst struggling to hold its ground against many of its other peers, following the release of a gloomy manufacturing PMI.

According to data published by IHS Markit, the UK’s factory sector continued to contract in June, with the manufacturing index slumping from 49.4 to 48, the worst reading since February 2013 and falling well below the modest drop to 49.2 than had been forecast.

The poor result was attributed to the continued unwinding of Brexit stockpiles built up in the first quarter, which exacerbated already weak domestic demand.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said:

‘With clients starting to unwind pre-March Brexit stockpiles new orders from domestic and export markets failed to materialise as the global economy also slowed down. Companies resorted to job losses to reduce the slack in production capacity, as employment fell for the third month in a row.’

The release caps off what has been a weak quarter for the UK manufacturing sector and will do little to limit concerns that the UK economy will have stagnated over the last three months.

Euro (EUR) Subdued as Eurozone Factory Growth Worse than Expected

At the same time, the Euro (EUR) is also struggling this morning following the release of the Eurozone’s own PMI figures.

IHS Markit reported the bloc’s manufacturing index slipped from 47.7 to 47.6 last month, coming in below a previous estimate which suggested it saw a modest improvement.

This is the fifth consecutive contraction in the Eurozone’s factory sector, with firms blaming a drop in new orders as slowing global growth began to take its toll.

However, the Euro was still able to recoup some of its initial losses against the Pound this week, following the release of the Eurozone’s latest employment report, with EUR investors welcoming another surprise drop in inflation.

GBP/EUR Exchange Rate Forecast: Continued Contraction in UK Construction Sector to Drag on Sterling?

Looking ahead, the Pound Euro (GBP/EUR) exchange rate may come under pressure again on Tuesday, with the publication of the UK’s construction PMI.

The release is expected to show that the sector continued to contract in June, and while only accounting for a very small portion of UK growth is still likely to dampen the appeal of Sterling.

Meanwhile, the publication of Germany’s retail sales figures are likely to provide some lift to the Euro tomorrow morning, as economists forecast that sales growth will have rebounded in May, following a particularly weak April.

Matthew Andrews

Contact Matthew Andrews