Pound Euro Exchange Rate: Eurozone PMI’s Impress, But German Recession Fears Linger

GBP/EUR Exchange Rate Static Following Eurozone PMIs

The Pound to Euro (GBP/EUR) exchange rate is trading in a narrow range this morning as markets digest the Eurozone’s latest PMI figures.

At the time of writing the GBP/EUR exchange rate is trading at around €1.0939, virtually unchanged from this morning opening levels.

Eurozone PMIs Offer Tentative Support to the Euro (EUR)

The Euro (EUR) is nudging slightly higher in trade this morning, in response to the Eurozone’s latest PMI figures

According to data published by IHS Markit, growth in the Eurozone’s private sector surprised on the upside in August, with the composite PMI reading rising to 51.8, defying forecasts of a slide to 51.2.

However in spite of a stronger-than-expected PMI print from Germany this month, analysts still fear the Eurozone’s largest economy is in danger of slipping into a recession this year.

Phil Smith, Principal Economist at IHS Markit said:

‘Germany remains a two-speed economy, with ongoing growth of services just about compensating for the sustained weakness in manufacturing.

‘Although improving slightly, the survey’s output data haven’t changed enough to dispel the threat of another slight contraction in GDP in the third quarter, especially given the deterioration in the forward-looking indicators….’

Ultimately the data is unlikely to deter the European Central Bank (ECB) from announcing a ‘substantial’ stimulus package next month.

Pound (GBP) Subdued as Markets Brace for ‘Frank’ Johnson-Macron Talks

Meanwhile, the Pound (GBP) is trading in a narrow range so far this morning as markets await details of Boris Johnson’s meeting with French President Emmanuel Macron later today.

Johnson met with German Chancellor Angela Merkel yesterday for talks in which Merkel appeared receptive to the idea of altering the Irish backstop, suggesting a solution might be achievable within 30 days.

However Johnson faces a much frostier reception from Macron, who insists that reopening negotiations on parts of the withdrawal deal is ‘not an option’.

As a result Sterling faces potential headwinds this afternoon, as an unyielding Macron will be incompatible with Johnson’s calls for the backstop to be scrapped, increasing the risks of a no-deal Brexit.

GBP/EUR Exchange Rate Forecast: How Will the ECB Minutes Impact the Euro?

Coming up later in the session, the publication of the minutes from the ECB latest policy meeting may also influence the Pound to Euro (GBP/EUR) exchange rate.

EUR investors will pour over the minutes for any insight into the bank’s stimulus plans for next month, with a notably dovish tone from policymakers expected to drive the Euro lower.

Further pressure on the single currency could then come in the form of the Eurozone’s latest consumer confidence figures, with household sentiment expected to remain firmly in negative territory.

The continued absence of UK economic data, will likely ensure Brexit remains the singular focus for GBP investors through the latter half of this week’s session.

This could result in Sterling’s selling bias lingering into Friday unless there are signs that opposition moves to block a no-deal Brexit are beginning to find some more momentum.

Matthew Andrews

Contact Matthew Andrews