Improved UK Manufacturing PMI Limits Pound Sterling Euro (GBP/EUR) Exchange Rate Downside
An unexpected improvement in February’s flash UK manufacturing PMI helped to keep a floor under the Pound Sterling to Euro (GBP/EUR) exchange rate this morning.
Rather than slipping into contraction as forecast the PMI instead jumped from 50 to 51.9, indicating a positive month of growth for the manufacturing sector.
This uptick limited anxiety over the outlook of the wider UK economy, particularly when matched with another solid services PMI.
Even so, Pound Sterling (GBP) only saw limited gains against its rivals as doubts over the sustainability of the manufacturing recovery weighed on market sentiment.
Better-Than-Expected German Manufacturing PMI Shores up Euro Demand
The mood towards the Euro (EUR), meanwhile, improved as Germany’s manufacturing PMI bettered forecasts.
While the PMI remained trapped in contraction territory investors still took encouragement from the fact that it picked up from 45.3 to 47.8 in February, avoiding a deeper decline.
This suggests that the slowdown in the German manufacturing sector could be bottoming out, fuelling hopes of a potential rebound in the months ahead.
Although the Eurozone’s powerhouse economy still faces significant headwinds thanks to weaker global trade and the impact of the Covid-19 outbreak EUR exchange rates pushed higher in the wake of the data.
However, as it remains to be seen whether the manufacturing sector can recover further momentum or return to a state of expansion in the first half of 2020 the single currency may struggle to hold onto its gains for long.
Euro Vulnerable to Underwhelming IFO Business Sentiment Surveys
Looking ahead to next week, the Euro could come under pressure with the release of the latest IFO business sentiment surveys.
With forecasts pointing towards a slight deterioration in February’s business climate index worries over the underlying health of the German economy may pick back up.
On the other hand, a solid uptick in the corresponding business expectations gauge could help EUR exchange rates to gain fresh traction.
As long as investors see reason to bet that the German economy will avoid slipping back into a technical recession in the near future this should limit the downside potential of the single currency.
Worries over UK-EU Trade Talks Set to Weigh on GBP Exchange Rates
The GBP/EUR exchange rate may struggle to return to an uptrend as anxiety over the next round of UK-EU negotiations continues to build.
As the risk of the transition period ending without a comprehensive trade agreement mounts the Pound could easily fall out of favour with investors.
February’s CBI reported retail sales index could also put a dampener on GBP exchange rates on Tuesday, with investors wary of a potential negative reading.
Any indication that consumer spending fell back once again in the last month may drag the Pound lower across the board, given that stronger levels of retail sales have helped to shore up economic activity in recent years.