Worst UK Services PMI Performance on Record Drags Pound Sterling Euro (GBP/EUR) Exchange Rate Lower
As March’s finalised UK services PMI saw a downward revision this drove the Pound Sterling to Euro (GBP/EUR) exchange rate into a fresh slump ahead of the weekend.
The PMI’s plunge from 53.2 to 34.5 on the month represents the single largest decline in the index’s history, highlighting the extent of the damage Covid-19 has already dealt to the UK economy.
As the service sector accounts for more than three quarters of the gross domestic product this major downturn suggests that the UK is on course for a first quarter contraction.
Although the decline is almost entirely the result of the Covid-19 outbreak and ensuing economic shutdown, though, markets see little hope of any imminent rebound in sector activity.
As a result, this disappointing showing left Pound Sterling (GBP) on the back foot today as confidence in the economic outlook diminished further.
Major Drop in Eurozone Economic Activity Fails to Weigh Down Euro Today
While March’s set of Eurozone services PMIs also showed a significant loss of momentum on the month this was not enough to prevent the GBP/EUR exchange rate trending lower.
Although economic activity across the Eurozone slowed significantly in the face of Covid-19 lockdowns this was not enough to drag the Euro (EUR) lower against its rivals at this stage.
An unexpectedly solid month of Eurozone retail sales helped to keep a floor under EUR exchange rates, in spite of spending looking set to decline anew in March.
Even so, with the currency union looking set to fall into a major recession which it may struggle to recover support for the single currency may prove short-lived.
Europe's economy's in free fall due to Coronacrisis. PMI's all registered record declines in activity, w/Italy and Spain experiencing the sharpest reductions. Pointing to massive recessions in the countries. https://t.co/wuoM9Efay5 pic.twitter.com/4VfLq2fzBU
— Holger Zschaepitz (@Schuldensuehner) April 3, 2020
Plunge in German Factory Orders Set to Drive Further Euro Selling
Fresh weakness could be in store for the Euro on Monday, however, as forecasts point towards a sharp decline in German factory orders.
If February’s orders data shows a significant downturn this could add to existing concerns over the health of the Eurozone’s powerhouse economy, paving the way for an even deeper contraction in March.
Unless the German manufacturing sector can show signs of resilience in the face of slowing global demand and Covid-19 disruption the potential for further Euro gains looks limited.
A weak set of Eurozone construction PMIs may encourage another bout of economic anxiety, meanwhile, as the odds of a deeper recession continue to grow.
Pound Remains Vulnerable to Softer UK Gross Domestic Product Reading
The mood towards the Pound, on the other hand, may deteriorate anew on the back of February’s UK gross domestic product report.
While the GDP data would predate the major impact of the global pandemic investors are still wary of the potential for another monthly stagnation or worse.
Evidence that the economy was already shedding ground before the Covid-19 crisis even took hold could encourage investors to pile out of the Pound.
Without a positive growth reading the GBP/EUR exchange rate looks set to remain biased to the downside.