GBP/EUR Exchange Rate Muted on Gloomy PMI Figures
The Pound to Euro (GBP/EUR) exchange rate is on the back foot this morning, following some underwhelming PMI figures from the UK.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1795, slightly down from the day’s opening levels.
Pound (GBP) Dented by Disappointing Manufacturing PMI
The Pound (GBP) is off to a poor start so far in 2020, opening the first day of trade on the defensive in the wake of a gloomy manufacturing PMI.
According to data published by IHS Markit, December was the UK manufacturing sector’s second worst performance since 2012, as its factory index slumped from 48.9 to 47.5.
🇬🇧 UK Manufacturing PMI ⬇️ to 47.5 in December, the second-weakest level in nearly 7.5 years. Output contracts at the fastest rate since July 2012, as ongoing economic, political and trade concerns weigh on new orders. More here: https://t.co/luRZp8wnVC pic.twitter.com/XI5EnH2sj5
— IHS Markit PMI™ (@IHSMarkitPMI) January 2, 2020
While it’s worth noting that the uncertainty posed by the general election is likely to have put some temporary pressure on the factory sector last month, analysts warn the reading will be worrying for investors.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply commented:
‘The pace of manufacturing’s decline in December will set alarm bells ringing as production levels sank at their fastest levels since July 2012 and with no sign of immediate recovery in sight.
‘In the closing stages of the year the sector has ended on a dreary note. Though the result of the General Election will bring some clarity to businesses, it still feels like a long road ahead for manufacturing to recover its losses from this year and there will still be some obstacles to overcome in 2020.’
The weak reading is also likely to fuel fears that the UK economy stagnated in the last quarter of 2019.
Euro (ECB) Buoyed as Eurozone Factory Growth Revised Higher
At the same time, the Euro (EUR) has found some modest support this morning as the Eurozone’s own manufacturing PMI figures came in slightly stronger than expected last month.
IHS Markit reported its final reading for December came in at 46.3, down from 46.9 in November by beating preliminary estimates it would sink as low as 45.9.
While the upward revision to the Eurozone manufacturing PMI reflected positively on the Euro this morning, any upside is likely to prove limited given the gloomy outlook for 2020.
Chris Williamson, chief business economist at IHS Markit warns:
‘The ability of the wider economy to avoid sliding into a downturn in the face of such a steep manufacturing contraction remains a key challenge for the Eurozone as we head into 2020.’
GBP/EUR Exchange Rate Forecast: Euro to Rally on Rising German Inflation?
Looking ahead, the Pound to Euro (GBP/EUR) exchange rate may come under some more pressure tomorrow morning with the publication of Germany’s consumer price index (CPI).
Economists forecast the CPI figures will show that inflation in Germany will have bounced back last in December, accelerating from -0.8% to 0.4% and propelling annual inflation up from 1.1% to 1.4%.
This will bolster hopes that Germany’s economy bottomed out in 2019 and that 2020 will see Europe’s largest economy begin to find its feet once more.
Meanwhile, the publication of the UK’s construction PMI is unlikely to offer any support to the Pound on Friday, with the construction sector expected to have suffered its eighth consecutive contraction in December.
Sterling will also remain vulnerable to any Brexit related jitters, with GBP investors going into 2020 still uncertainty whether the UK could crash out of the EU by the end of the year.