Softer UK Services PMI Exposes Pound Euro (GBP/EUR) Exchange Rate to Selling Pressure
A weaker-than-expected showing from the UK services PMI left the Pound Sterling to Euro (GBP/EUR) exchange rate on the back foot.
As the index slowed from 56.1 to 52.9 on the month in October this highlighted the increasing pressure coming to bear on the UK economy.
Although the PMI remained in expansion territory, coming in above the neutral baseline of 50, this was not enough to encourage demand for Pound Sterling (GBP).
Given that the service sector remains the primary growth engine of the UK economy investors were naturally discouraged by this evidence of slowing momentum, raising the odds of a weaker fourth quarter gross domestic product.
Signs of increasing job cuts within both the services and manufacturing sectors added to the bearish mood, leaving the Pound on the back foot against its rivals.
Euro Trends Lower as Eurozone Services PMI Extends Decline
Even so, the Euro (EUR) still struggled to fully capitalise on the weakness of the Pound thanks to the lacklustre nature of the latest Eurozone services PMIs.
After the decline seen in September the sector experienced a further slowdown this month, pushing the PMI down from 48 to 46.2.
With the index falling deeper into contraction territory, and with the prospect of further Covid-19 restrictions on the horizon, this naturally put the single currency under pressure.
The growing case for greater European Central Bank (ECB) policy action and greater fiscal stimulus across the currency union may keep EUR exchange rates biased to the downside in the near term.
Souring German Business Sentiment Forecast to Drag on Euro
Further weakness could be in store for the Euro on Monday with the release of October’s German IFO business sentiment surveys.
If the business climate and expectations indexes weaken on the month as forecast this could give investors fresh reason to sell out of the single currency.
As long as the Eurozone’s powerhouse economy continues to come under pressure in the face of ongoing Covid-19-based anxiety this may offer the GBP/EUR exchange rate a leg up.
Without signs of increased business resilience within the German economy the mood towards the Euro looks set to sour further.
Lack of UK-EU Trade Talk Progress May Weigh on GBP/EUR Exchange Rate
Trade talks between the UK and EU could also provoke volatility for the GBP/EUR exchange rate in the days ahead.
While talks now look set to last until mid-November, with the aim of reaching a deal, the Pound still looks vulnerable to any deterioration in relations between the two sides.
The longer that talks continue without any signs of a breakthrough on key issues the greater the fear of a potential no-deal scenario is likely to grow.
With forecasts pointing towards a decline in the CBI distributive trades index on Tuesday support for GBP exchange rates may prove limited during the start of next week.