Pound Euro Exchange Rate Loses Traction in Spite of Higher UK Manufacturing PMI

Manufacturing PMI Revision Fails to Boost Pound Euro Exchange Rate

The Pound to Euro (GBP/EUR) exchange rate lost some of its footing ahead of the Easter weekend in spite of an upward revision to March’s finalised UK manufacturing PMI.

While the revision lifted the PMI to a ten-year high of 58.9 this was not enough to keep Pound Sterling (GBP) trending higher across the board at this stage.

As the impact of the manufacturing sector data had already largely been priced into GBP exchange rates in response to the initial estimate this limited the potential for any further gains.

Even so, the risk of a weaker first quarter growth rate appeared to diminish in the wake of the data, helping to keep a solid floor under the Pound for the time being.

Lower German Retail Sales Recovery Limits Euro Appeal

Support for the Euro (EUR) also proved relatively muted, meanwhile, as February’s German retail sales figures fell short of forecast.

As sales only saw growth of 1.2% on the month, as opposed to 2%, this was not enough to reverse January’s sharp decline in retail spending.

All in all, signs continue to point towards sustained weakness within the Eurozone retail sector, limiting demand for the single currency at this stage.

Although the finalised manufacturing PMIs still showed strong growth on the month this failed to offer EUR exchange rates any upside momentum.

Euro Exchange Rates Vulnerable to Signs of Eurozone Service Sector Weakness

Looking ahead, the Euro could find itself shedding further ground next week if the corresponding services PMIs confirm a weaker monthly performance.

If the finalised figures still show another contraction in service sector activity the mood towards the single currency looks set to sour, with fears of a negative first quarter gross domestic product lingering.

With the Eurozone expected to face further disruption from the ongoing pandemic in the coming months the prospect of sustained weakness could weigh heavily on the Euro.

Evidence that infections within the currency union have continued to rise may also put a dampener on EUR exchange rates in the days ahead.

Confirmation of Positive UK Services PMI to Boost GBP/EUR Exchange Rate

On the other hand, as March’s initial services PMI showed a surge in activity on the month the Pound may find additional cause for confidence on the finalised figure.

Provided that the PMI doesn’t see any negative revisions the Pound to Euro exchange rate looks set to remain on a positive footing next week.

As long as investors see reason to bet that the service sector has already begun to recover its lost momentum heading into the second quarter the appeal of the Pound seems set to rise.

Unless the PMI proves significantly weaker than anticipated the GBP/EUR exchange rate should find itself relatively insulated against downside pressure in coming week.

Louisa Heath

Contact Louisa Heath