Pound to Euro (GBP/EUR) Exchange Rate Steady as UK Services Sector Grows at a Strong Pace

GBP/EUR Exchange Rate Rangebound as UK Economy Shows Signs of Recovery

The Pound to Euro (GBP/EUR) exchange rate held steady this morning, with the pairing currently trading round €1.09.

Sterling is rangebound against the Euro (EUR) following this morning’s release of the latest UK Markit Services PMI for July, which beat forecasts and rose from 47.1 to 56.6. Consequently, Sterling investors have become more hopeful for Britain’s economic recovery.

Chris Williamson, the Chief Business Economist at HIS Markit, was notably upbeat in his assessment, saying:

‘The UK economy started the third quarter on a strong footing as business continued to reopen doors after the COVID-19 lockdown. The surge in business activity in July will fuel expectations that the economy will return to growth in the third quarter after having suffered the sharpest contraction in modern history during the second quarter.’

Today also saw the release the latest UK retail sales for June, which beat forecasts and rose from 12.3% to 13.9%. As a result, GBP investors have become more optimistic about the retail sector’s recovery from the Covid-19 crisis.

Jonathan Athow, deputy national statistician at the Office for National Statistics (ONS), commented on the report:

‘Food shops continue to do quite well, as we’re eating at home more.’

‘But the real growth has been in online sales. Online sales continue to go from strength to strength. We’ve had record online sales – £3 in every £10 of retail sales is now spent online and that’s a really big increase.’

Euro (EUR) Steadies as Eurozone PMI Composite Beats Forecasts in July

The Euro (EUR) failed make any significant gains against GBP today despite a stronger-than-expected Eurozone PMI Composite figure for July, which rose from 48.5 to 54.8. Consequently, EUR investors are becoming more hopeful that the Eurozone’s economy could be on the road to recovery.

Chris Williamson, Chief Business Economist at IHS Markit said:

‘Companies across the euro area reported an encouraging start to the third quarter, with output growing at the fastest rate for just over two years in July as lockdowns continued to ease and economies reopened. Demand also showed signs of reviving, helping curb the pace of job losses.’

The Eurozone’s business activity rose for the first time since February, buoying demand for the EUR as the bloc’s economy continues to show strong signs improvement.

The Euro (EUR) has also benefited from weakness in the US Dollar (USD) as the number of Covid-19 in America continues to concern global markets.

GBP/EUR Outlook: Could Post-Brexit No-Deal Fears Drag Down Sterling?

Looking ahead to next week, Euro (EUR) investors will be awaiting Monday’s release of the German IFO business climate figures for July. Any improvement in the outlook for the Eurozone’s largest economy would prove EUR-positive.

Meanwhile, Pound (GBP) traders will be looking ahead to Tuesday’s release of the CBI Distributive Trades Survey for July. If this shows an uptick from last month’s -3.7% we could see Sterling begin to edge higher.

The GBP/EUR exchange rate will be driven by UK-EU Brexit developments next week. If trade negotiations remained lodged in their current stalemate, then we could see GBP suffer on fears of a hard Brexit in December.

David Moore

Contact David Moore