Pound Euro Exchange Rate Teeters on Poor PMI and Retail Sales Slump
The Pound Euro (GBP/EUR) exchange rate is wavering this morning after losing ground towards the end of the overnight session, with the Pound (GBP) currently holding steady against the Euro (EUR) at the time of writing.
The single currency initially benefitted from some positive Eurozone PMI results, but a shock contraction in retail sales growth in July could create headwinds for EUR. Meanwhile, slowing expansion in the UK’s services sector weighs on the Pound.
Pound (GBP) Shows Resilience following Poor PMI
The Pound was off to a slow start this morning, as the finalised services PMI showed another drop in UK service-sector activity.
The results for August were downwardly revised from 55.5 to 55.0, falling almost 5 points from July’s reading of 59.6, the third month of slowing expansion and the worst reading since February this year.
The UK’s services sector – which makes up around 70% of GDP – has been hit by rising Covid cases, staff shortages and lower consumer spending.
But despite this poor reading, and growing concerns about the UK’s economic recovery in recent days, the Pound Euro exchange rate is holding steady.
Sterling has proven to be surprisingly resilient recently, after making gains through yesterday’s session in spite of warnings from business groups about a ‘perfect storm’ for supply chains in the run up to Christmas.
Euro (EUR) Dips on Mixed Data
The Euro initially made some modest gains against the Pound this morning, despite Germany’s and the Eurozone’s Markit PMIs being revised slightly lower than preliminary estimates.
The results revealed the first slowdown in service-sector activity since April for the Germany and since January for the Eurozone but still showed strong expansion.
Paired with Wednesday’s manufacturing PMI, the composite figure in the Eurozone dropped from a 15-year high of 60.2 down to 59, which is still among the highest readings since before the 2008 financial crisis.
Joe Hayes, a senior economist at IHS Markit, said ‘it was another solid result for euro area businesses in August.’ He added:
‘Another strong quarter-on-quarter rise in GDP is on the cards for the third quarter, and we’re certainly on track for the euro zone economy to be back at pre-pandemic levels by the end of the year, if not sooner.’
However, the Euro began losing ground ahead of the Eurozone retail sales figures for July, which were expected to show that sales growth slowed to 0.1%. The actual reading printed at -2.3%, revealing that sales had contracted for the first time since April.
Pound Euro Exchange Rate Forecast: US Non-Farm Payrolls Could Tip the Balance
Looking ahead, the recent retail sales results for the Eurozone could present an opportunity for the Pound Euro exchange rate to strengthen. However, it’s hard to say whether GBP investors will have the motivation to go on the offensive considering the current concerns over the UK’s economic trajectory.
Also in focus for today is the US non-farm payrolls data. After the ADP employment change report missed expectations earlier this week, there’s a chance that this release could also fall short of forecasts. However, the ADP and non-farm payrolls reports have been known to vary significantly. A weak jobs report could dent the US Dollar, thereby boosting EUR exchange rates through the USD/EUR negative correlation.