UK Construction Sector Resilience Offers Pound Euro Exchange Rate Boost
A stronger-than-expected uptick in the UK construction PMI encouraged the Pound to Euro (GBP/EUR) exchange rate to extend its bullish run.
While forecasts had pointed towards an improvement in the PMI the sharpness of the uptick from 49.2 to 53.3 came as a surprise.
This suggests that the construction sector largely shrugged off the impact of the ongoing national lockdown in February, recovering momentum in spite of Covid-19 pressures.
However, the ultimate impact of the construction PMI remains limited thanks to the sector only accounting for a small fraction of the UK gross domestic product.
With the services sector still looking set to drag the first quarter growth rate into negative territory the construction PMI improvement is unlikely to boost Pound Sterling (GBP) for long.
Underwhelming Eurozone Retail Sales Weigh Down EUR Exchange Rates
On the other hand, the Euro (EUR) fell sharply out of favour on Thursday thanks to the disappointing nature of January’s Eurozone retail sales data.
Although investors had anticipated a fresh decline in retail sales at the start of the year they were caught off by the extent of the drop, with sales slumping -5.9% on the month.
Coming on the heels of similarly weak German sales figures this offered fresh evidence of deteriorating consumer confidence across the currency union.
With the negative impact of the current pandemic looking set to persist for the foreseeable future the prospect of a retail sector recovery appears limited, to the detriment of EUR exchange rates.
German Factory Orders Rebound May Boost Euro Demand
Even so, the mood towards the single currency could improve tomorrow with the release of the latest German factory orders report.
With forecasts suggesting a solid increase in orders on the month worries over the health of the German economy, and the wider Eurozone by extension, could temporarily diminish.
After the -1.9% drop seen in December investors expect to see a modest recovery of 0.7%, indicating an increase in momentum within the German manufacturing sector.
However, if orders fail to bounce back as anticipated this could leave EUR exchange rates vulnerable to another day of selling pressure.
Pound Exchange Rates Look for Support on Halifax House Price Index
February’s Halifax house price index may encourage further demand for the Pound, meanwhile.
As long as the UK housing market shows signs of strength in spite of lockdown this could help to limit the extent of any potential first quarter economic slowdown.
Evidence that house prices rose once again on the month could see the Pound to Euro exchange rate extending its gains heading into the weekend.
Even so, if house prices fail to sufficiently impress investors the Pound may find itself facing a bout of correction in the wake of its recent run of gains.