GBP/EUR Exchange Rate Falls, UK Manufacturing Could ‘Disintegrate in the Coming Months’
The Pound to Euro (GBP/EUR) exchange rate fell by -0.8% today, with the pairing currently trading around €1.152 after the Bank of England (BoE) announced that it will ‘take all necessary steps to protect [the UK’s economic] stability’.
Sterling fell against many of its peers this morning as this contradicts the Governor of the BoE Mark Carney’s previously wait-and-see approach. This also indicates that the central bank could take stimulus measures in the near-term.
The BoE also stated that it ‘continues to monitor developments’ around the global outbreak of the coronavirus and is ‘assessing its potential impacts on the global and UK economies and financial systems’.
Today saw the release of the UK Markit Manufacturing PMI for February, which fell below forecasts from 51.9 to 51.7. With post-Brexit uncertainty and increasing cases of UK coronavirus cases, this added to today’s downwards pressure on the Pound to Euro exchange rate.
Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, was downbeat in his analysis:
‘With no clear end to the disruption in sight, the gains made by the manufacturing at the beginning of the year could soon be lost. A vortex of poor UK weather conditions, underlying remaining Brexit fears and now the Coronavirus will strip the sector of any significant wins if supply chains continue to disintegrate in the coming months.’
Euro (EUR) Rises as German Manufacturing PMI Beats Forecasts in February
The Euro (EUR) rose against the Pound (GBP) after February’s German Markit Manufacturing PMI beat forecasts and rose from 47.8 to 48.
Phil Smith, Principal Economist at IHS Markit, commented on the report:
‘Notwithstanding the impact of the coronavirus outbreak in China on exports and supply chains, the manufacturing sector in Germany managed to creep closer to stabilisation in February as declines in output and total new orders eased, helped by signs of firmer domestic demand.’
The EUR/GBP exchange edged higher as single currency investors reacted positively to the encouraging signs of a possible stabilisation of the Eurozone’s largest economy.
Last week also saw the European Central Bank (ECB) show signs of holding off on near-term stimulus measures.
Chris Turner, the Global Head of Strategy at ING, said that ‘[the ING] team suspects the ECB will be unwilling to deliver an emergency response’, with Euro investors instead hoping that the US Federal Reserve’s expected rate cut could boost the EUR due to its negative correlation with the US Dollar.
GBP/EUR Outlook: Eurozone Inflation Report in Focus
Euro (EUR) investors will be looking ahead to tomorrow’s release of the Eurozone’s flash inflation report for February. Any signs of improvement would boost confidence in the bloc’s economic recovery and prove EUR-positive.
Tomorrow will also see the release of the UK’s Markit Construction PMI for February. Any signs of deterioration could further weaken the Pound as Britain’s economic outlook continues to darken.
GBP investors will be paying close attention to the UK’s coronavirus outbreak. If there are any further cases we could see the odds of a BoE rate cut increase, and thus weaken the GBP/EUR exchange rate.