GBP/EUR Exchange Rate Edges Higher as UK Markets Await UK Services PMI for August
The Pound to Euro (GBP/EUR) exchange rate edged higher this morning, with the pairing up by 0.3% and currently trading around €1.113.
Sterling benefited from this morning’s release of July’s UK retail sales figure, which beat forecasts and rose by 3.6% month-on-month. The year-on-year figure rose from -1.6% to 1.4%. As a result, GBP investors have become more optimistic as retail sales are now above pre-pandemic levels.
Emma-Lou Montgomery, associate director at Fidelity International, however, was more cautious, saying:
‘[T]he outlook could feel a little brighter for retailers [but with] the UK now in a recession and many households likely to be tightening their belts as a result, spending on non-essential items may take a hit in the coming months, particularly as we approach the end of the furlough scheme in October.’
Today also saw the release of July’s UK public sector net borrowing figure for July, which fell to £25.944 billion. Chancellor Rishi Sunak said this was a ‘stark reminder that we must return our public finances to a sustainable footing over time, which will require taking difficult decisions’.
GBP investors will be looking ahead to today’s release of August’s flash UK services PMI, however. Any improvement in the UK’s largest sector could further boost the GBP/EUR exchange rate.
Euro (EUR) Sinks as Eurozone PMIs Show Signs of Dwindling Momentum in Economy
The Euro (EUR) suffered following the release of August’s German PMI composite figure, which fell below forecasts from 55.3 to 53.7. EUR investors have become increasingly concerned about the Eurozone’s powerhouse economy’s ability to recover from the Covid-19 crisis.
Phil Smith, the associate director at IHS Markit, commented on the report:
‘The slowdown was centred on the service sector, where growth was close to stalling amid renewed travel restrictions and a sustained decline in overall employment that continues to undermine domestic demand.’
This morning also saw the release of the Eurozone’s PMI composite for August, which fell from 54.9 to 51.6. Consequently, this weighed on the Euro (EUR) as the Eurozone’s economic recovery continues to flag.
Andrew Harker, the Economics Director at IHS Markit, commented:
‘The Eurozone’s rebound lost momentum in August, highlighting the inherent demand weakness caused by the COVID-19 pandemic. The recovery was undermined by signs of rising virus cases in various parts of the euro area, with renewed restrictions impacting the service sector in particular. Manufacturers continued to post marked increases in output and new orders.’
GBP/EUR Forecast: Could Brexit Deal Hopes Boost the Pound Next Week?
Euro (EUR) investors will be looking ahead to Tuesday’s release of Germany’s GDP figure for the second quarter. However, if this continues to remain in the doldrums, we could see the single currency suffer.
Tuesday will also see the release of Germany’s IFO business climate and current assessment reports for August. If these improve, however, we could see the EUR/GBP exchange begin to edge higher.
Pound (GBP) traders, meanwhile, will be looking ahead to Tuesday’s publication of the CBI distributive trades survey for August. Any signs of improvement in the UK’s retail sector would prove GBP-positive.
The GBP/EUR exchange rate could rise next week if there are signs that the UK could secure a post-Brexit trade deal.