Pound Euro Exchange Rate Rises as UK PMI Reveals Better-Than-Expected Recovery
(Updated 16:00, 03/11/2021) The Pound rose up against the Euro this afternoon as investors digested the finalised UK services PMI. Data from Markit/CIPS revealed that service-sector activity reached 59.1 in October rather than the 58 points expected.
Reopening of the economy and looser international travel restrictions helped to boost demand, as new export sales rose at the fastest pace in just over 3 years, while new work growth was the fastest since June 2018.
Demand was ‘exceptionally strong’ in hospitality, leisure and transportation, following the relaxation of pandemic restrictions. Consequently, firms were left to juggle staff shortages and supply chains constraints, with many companies hiking wages to attract new workers.
Inevitably, increased costs were passed onto customers: experts imagine that these higher costs ‘may bolster MPC members on the verge of voting for higher interest rates in November’s meeting.’
However, Martin Beck, senior economic advisor to the EY ITEM Club, maintains that tomorrow’s decision still looks to be on a knife edge.
Meanwhile, the Euro continues to trade in a mixed range despite unemployment in the bloc edging down to its lowest level since April 2020.
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GBP/EUR Exchange Rate Muted on Lack of Brexit Progress
The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range this morning, as investors digest Eurozone employment data. In September 2021, the Euro area seasonally-adjusted unemployment rate was 7.4%, down from 7.5% in August.
At the time of writing, GBP/EUR is trading at €1.1758, virtually unchanged from today’s opening levels.
Pound (GBP) Slumps on Lack of Data, Brexit Headwinds
The Pound (GBP) is falling against the majority of its peers as a lack of data leaves the currency exposed to losses. Brexit sentiment is subdued, as a lack of progress characterises ongoing talks.
According to reporters, Boris Johnson’s search for an ‘impossibly pure form of sovereignty’ has condemned Britain to a long and painful Brexit.
Rafael Behr of The Guardian comments:
‘Britain cannot get any further out of the EU… We are stuck in the purgatory […] of rolling negotiations that reach a certain point of agreement before breaking down and restarting.’
Regarding the most recent dispute over UK-Franco fishing rights, some relief has been granted by French President Emmanuel Macron.
Initially, Macron had warned that without Britain revising its decision to deny fishing licenses to a number of small French vessels, France would ban UK fishers from landing catches at French ports. However, the President extended an alternative proposal late on Monday.
The row over fishing, a small sector of the UK economy, all but overshadowed the G20 talks, which took place in Rome at the weekend, as well as the Cop26 summit.
Euro (EUR) Trades Flat Following Employment Data
The Euro is directionless this morning following the release of September’s Eurozone unemployment rate. Unemployment decreased by 0.1% as expected, as the economy shows signs of recovery.
While the percentage is small, an increase of European workers is positive news for bullish traders, as labour conditions are a factor in preventing the European Central Bank (ECB) from tightening monetary policy.
In its latest monetary policy statement, the ECB remarked that:
‘The labour market continues to improve. Unemployment has fallen and the number of people in job retention schemes is down… But, both the number of people in the labour force and the hours worked in the economy remain below their pre-pandemic levels.’
Also influencing Euro trading are ongoing Federal Reserve talks. The Fed will release its interest rate decision this afternoon and is widely expected to announce a reduction of $15 billion in monthly asset purchases.
Given the strong negative correlation between the Dollar and the single currency, support for the ‘Greenback’ will likely weigh upon Euro sentiment.
Pound Euro Exchange Rate Forecast: Euro to Firm on Unemployment Rate?
Looking ahead, the Euro may be on the verge of climbing against its peers as Eurozone unemployment drops. Compared with August 2021, Eurostat estimates that the number of persons unemployed decreased by 255 000 in the euro area.
Meanwhile, ongoing Brexit talks over fishing rights and the Northern Ireland protocol may influence Pound Euro trading, as well as developments at the COP26 climate summit.