Pound Euro Exchange Rate Rises Despite Falling UK Private Sector Growth

Pound Euro Exchange Rate Edges Higher as Germany’s Economic Growth is Expected to Miss Forecasts

(Update: 23/08/2021 15:45) The Pound Euro exchange rate rose by 0.3% following the latest private sector UK growth data for August, which fell below forecasts. The pairing is currently trading around €1.16.

Alpesh Paleja, CBI Lead Economist, commented:

‘Manufacturing activity remained strong this month, with total order books remaining firm and most sub-sectors reporting rising output. However, early signs from the data suggest that growth in activity may have peaked.

‘Despite the rebound in activity, ongoing disruptions could choke off future manufacturing growth. It’s therefore vital that businesses and the government continue to work together to smooth over some of the frictions in supply chains and the wider sector, until activity settles back down to normal levels.’

Added to this, uncertainty over the UK’s Covid-19 situation going forward – with cases expected to rise in the autumn months – Pound investors have become more cautious about the nation’s economic recovery.

The Euro (EUR) struggled later this afternoon following reports that Germany’s growth could miss forecasts this year, according to Bundesbank.

Analysts at Reuters said:

‘Europe’s biggest economy is expected to grow by 3.7% this year and 5.2% in 2022 but the early weeks of the rebound were more timid than projected and that will likely weigh on the full-year figure as well, the Bundesbank said.’

Original article continues below:

GBP/EUR Exchange Rate Rangebound, Eurozone Economy ‘Firing on All Cylinders’

The Pound to Euro (GBP/EUR) exchange rate held steady this morning following the publication of the flash Eurozone composite PMI data for August, which fell below forecasts from 60.2 to 59.5. The pairing is currently trading around €1.16.

However, Eurozone economic growth remained strong, with the outlook for the bloc’s economy remaining generally positive.

Chris Williamson, the chief business economist at IHS Markit, comments:

‘The Eurozone’s economic recovery retained impressive momentum in August, with the PMI dipping only slightly from July’s recent high to put its average in the third quarter so far at the highest for 21 years.

‘Although the spread of the Delta variant caused widespread problems across the region, curbing demand and causing further supply issues, firms benefited from virus containment measures easing to the lowest since the pandemic began.’

The latest Eurozone PMI data also revealed that company growth had hit a near 15-year high despite problems with supply chains.

However, the PMI does reveal that it might be past its peak, but the outlook for growth in the third quarter looks increasingly strong.

Bert Colijn, the senior economist for the Eurozone at ING, said that the Eurozone economy is ‘firing on all cylinders’.

Pound (GBP) Exchange Rate Rangebound as UK Services Sector Suffers in August

The Pound (GBP) failed to rise today following the release of the latest flash UK services PMI for August. The figure fell below forecasts from 59.6 to 55.5, showing a slowing down in the nation’s most lucrative sector.

Duncan Brock, the group director at CIPS, commented on the data:

‘An abnormally large slowdown in overall activity in August offers a stark warning to the UK economy that the accelerated levels of growth we’ve seen earlier this summer are not sustainable. It was the slowest output expansion for six months, and the worst shortages of staff and materials on record are mostly to blame.

‘The mood generally remained buoyant, however, especially amongst service companies as the end of pandemic restrictions improved business activity. It was also encouraging that export order growth picked up since July, as countries recovered at different speeds. However, it’s likely that cautious consumers will continue to remain an obstacle for UK businesses until full confidence returns.’

However, caution remains for the outlook for the UK economy, with daily Covid-19 infections rising and predicted to further increase throughout the autumn and winter months.

Today also saw the release of the latest flash manufacturing PMI, however, which beat forecasts at 60.1.

As a result, Pound investors are monitoring the UK’s coronavirus situation today. Any indications of rising daily cases would be GBP-negative.

GBP/EUR Exchange Rate Forecast: German Growth Data in Focus

Euro (EUR) traders will be looking ahead to tomorrow’s German GDP data for the second quarter. Any improvement in the outlook for the Eurozone’s largest economy would be EUR-positive.

Tomorrow will also see a speech from Isabel Schnabel, a member of the European Central Bank’s (ECB) executive board. If she is notably upbeat about the Eurozone’s economic growth, then the EUR/GBP exchange rate would head higher.

The Pound Euro exchange rate could edge higher this week, however, if Covid-19 deaths and hospitalisations show any signs of falling throughout the United Kingdom.