Pound Euro Exchange Rate Lacks Direction as UK Service Sector Stagnates

GBP/EUR Exchange Rate Muted Following UK Services PMI

The Pound to Euro (GBP/EUR) exchange rate is currently rangebound after the UK’s services PMI failed to inspire confidence in the domestic economy.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1591, virtually unchanged from today’s opening rate.

Pound (GBP) Subdued Following Services PMI

The Pound (GBP) is trading in a narrow range this morning following the publication of the UK’s latest services PMI.

According to data published by IHS Markit, the UK’s services PMI came in at 50 last month, up from 49.5 in September and beating forecasts for a more modest rise to 49.7.

50 marks the point between contraction and growth, indicating that the UK’s vital services sector stagnated in October.

Unsurprisingly, the slowdown was attributed to the ongoing uncertainty surrounding Brexit, with firms reluctant to invest in the UK until it is resolved.

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

‘The sector’s main difficulties are largely of Brexit’s making and with another deadline comes more indecision and delay. Businesses are putting off their investments for happier times and consumers are saving their pennies in case rising costs have a more severe impact on their daily lives.

‘Companies are waiting for a resolution by the UK Government to salvage the current situation so workflows can begin again at healthier levels.’

Alongside the manufacturing and construction PMIs, today’s figures paint a bleak picture of UK economic growth and are consistent with quarterly GDP contracting by 0.1%.

Euro (EUR) Pressured by Resurgent US Dollar (USD)

The Euro (EUR) is struggling to find momentum this morning as the appeal of the single currency is limited in the face of renewed demand for the US Dollar (USD).

Much of the Euro’s recent strength has come from the persistent selling bias surrounding its largest trading partner.

However with the US Dollar rebounding at the start of this week, the single currency is starting to look less appealing, particularly given the increasingly fragile outlook for the Eurozone.

GBP/EUR Exchange Rate Forecast: Dissolution of Parliament to Spark Volatility?

Looking ahead, the Pound to Euro (GBP/EUR) exchange rate may face some volatility in the mid-week as parliament is dissolved ahead of the upcoming UK general election.

The dissolution on Wednesday marks the official start of the five week campaign period and GBP investors will be keeping a close eye on polling numbers as each party publishes its election manifesto in the coming days.

Expect to see Sterling come under pressure if there are any signs that the Conservatives’ lead over Labour may have narrowed at any point.

For EUR investors the focus will likely be on Germany’s upcoming industrial data, with any further weakness in the country’s manufacturing sector likely to weaken the Euro as it fuels fears the Eurozone’s largest economy may have slipped into a recession.

Matthew Andrews

Contact Matthew Andrews