Smaller-Than-Expected UK Services Decline Encourages Pound Sterling Euro (GBP/EUR) Exchange Rate Uptick
A positive revision to the finalised UK services PMI encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to jump higher this morning.
As the PMI was revised up from its initial reading of 48.6 to 49.3 this indicated that the service sector’s decline was not as sharp as previously thought.
Commenting on the report, Tim Moore, Economics Associate Director at IHS Markit, stated:
‘November’s PMI surveys collectively suggest that the UK economy is staggering through the final quarter of 2019, with service sector output falling back into decline after a brief period of stabilisation.’
While the better-than-expected index helped Pound Sterling (GBP) recover fresh ground today this positive mood may prove short-lived.
Unless the UK economy can demonstrate greater signs of resilience, reducing the odds of a fourth quarter growth contraction, GBP exchange rates are likely to come under renewed pressure in the near future.
Growing Global Trade Worries Dent Euro Demand
In the wake of the latest US trade comments, which threatened tariffs on a range of French produce, support for the Euro (EUR) proved limited.
Although November’s set of Eurozone services PMIs saw an improvement on their initial estimates this was not enough to offer the single currency any particular boost.
With global trade tensions looking set to linger for some time yet to come confidence in the strength of the Eurozone’s economic outlook remained muted.
Unless trade conditions show signs of picking up before the end of the year both Germany and the wider Eurozone look set to experience a further loss of momentum as economic activity falls.
Further Euro Losses Forecast on Lacklustre Eurozone Retail Sales
The mood towards the Euro could sour further tomorrow if October’s Eurozone retail sales data fails to impress.
Given the weakness in manufacturing and trade the retail sector needs to demonstrate solid growth in order to shore up the currency union’s economic performance.
However, after German retail sales saw a sharp decline on the month markets are wary of the potential for a similarly disappointing Eurozone figure.
If consumers appear to have adopted a more cautious outlook at the start of the fourth quarter this could weigh heavily on the Euro, offering the GBP/EUR exchange rate a fresh boost.
Weak German Factory Orders Set to Weigh Down EUR Exchange Rates
Fresh weakness may also be in store for EUR exchange rates in the days ahead as forecasts point towards softer German factory orders and industrial production data.
More evidence of a weakening German manufacturing sector would leave the Euro exposed to another bout of selling pressure, as the risk of a gross domestic product contraction grows.
As long as the Eurozone’s powerhouse economy appears to remain on course for a negative fourth quarter growth rate support for the single currency is likely to prove limited.
Without signs of the manufacturing sector recovering from its recent decline the Euro looks set to remain on the back foot this week.