GBP/EUR Exchange Rate Muted as PMIs Make for Dire Reading
The Pound to Euro (GBP/EUR) exchange rate is struck trading in a narrow range this morning as investors digest the UK’s and Eurozone’s latest PMI figures.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1440, virtually unchanged from this morning’s opening levels.
Pound (GBP) and Euro (EUR) Traders Floored by Extent of PMI Collapse
Both the Pound (GBP) and the Euro (EUR) are struggling for direction this morning as markets respond to some truly dire PMI readings from both the UK and Eurozone.
According to preliminary data published by IHS Markit, both economies are shrinking at unprecedented rates this month, with the UK’s composite PMI plummeting to just 12.9 and the Eurozone composite reading only faring slight better at 13.5, both being well below the 50 mark which denotes the barrier between growth and contraction.
April 'flash' #PMI data for the eurozone highlighted an unprecedented collapse in business activity amid #COVID-19 lockdown measures. The Composite Output Index fell to a survey record low of 13.5 (29.7 in March).
Read more: https://t.co/7seXKFDeoJ pic.twitter.com/ATRkfEchjS— S&P Global PMI™ (@SPGlobalPMI) April 23, 2020
This collapse in economic activity was attributed to a starling collapse in the vital services sector, with the closure of non-essential stores as part of coronavirus lockdown measures and falling demand due to more cautious consumers absolutely hammering growth.
The plunge all but confirms that the global economy is headed for a sharp recession in the second quarter.
Commenting on the slump in the Eurozone, Chris Williamson, Chief Business Economist at IHS Markit, said:
‘April saw unprecedented damage to the eurozone economy amid virus lockdown measures coupled with slumping global demand and shortages of both staff and inputs.
‘The extent to which the PMI survey has shown business to have collapsed across the eurozone greatly exceeds anything ever seen before in over 20 years of data collection. The ferocity of the slump has also surpassed that thought imaginable by most economists, the headline index falling far below consensus estimates.’
Unsurprisingly the extent of the collapse in both the UK and Eurozone’s private sector has floored investors this morning, leaving the GBP/EUR exchange rate rangebound as they try and digest the figures.
GBP/EUR Exchange Rate Forecast: Can the EU Present a Unified Front Against the Coronavirus?
Still to come today is a virtual EU summit, in which leaders will attempt to finally hammer out a coordinated fiscal response to the coronavirus crisis.
However, the meeting comes amid division between EU members of the possibility of issuing joint debt through so-called ‘coronabonds’, with countries like the Netherlands staunchly against any such move.
In light of this it would be extremely surprising if members were able to reach a comprehensive agreement in today’s meeting and as a result, we may see renewed concerns about the unity of the EU.
French President Emmanuel Macron previously warned of the EU faces a ‘moment of truth’ and that the whole EU project is at risk of unraveling unless it embraces financial solidarity in face of the coronavirus crisis. Such concerns are likely to strengthen the Pound to Euro (GBP/EUR) exchange rate later today should EU leaders fail to address the issue.
At the same time, the resumption of Brexit trade talks between the UK and EU could limit any upside in Sterling today especially as the latest round of negotiations are likely to highlight the gulf between the two sides and how little time there is left for a deal to be found.