Pound Euro (GBP/EUR) Exchange Rate Edges Up as PMIs Stoke Recession Fears
The Pound Euro (GBP/EUR) exchange rate is wavering today, heading higher overall, as recession risks in both the UK and the Eurozone intensify.
At the time of writing, GBP/EUR is trading at around €1.1856, having wavered about 0.14% higher from today’s opening level.
Pound (GBP) Subdued amid Factory Activity Slump
The Pound (GBP) is wobbling today, languishing near multi-month lows against some of its peers, as worries about the UK economy persist.
The latest downbeat news for the UK comes from the flash PMIs for August. UK manufacturing activity slumped this month, with the PMI score falling from 52.1 to 46. A score of 50 separates contraction from expansion.
Service-sector activity was better than expected, although it did edge down to a fresh year-and-a-half low.
Overall, the downbeat manufacturing data dragged the composite PMI to 50.9 – close to stagnation.
Growth eased again in UK with the flash #PMI at an 18-month low of 50.9 (Jul: 52.1). Demand was impacted by economic uncertainty and high costs while employment growth also moderated. Read more: https://t.co/P4mdA0F04B pic.twitter.com/AUhinzpGgI
— S&P Global PMI™ (@SPGlobalPMI) August 23, 2022
These gloomy results come amid a record fall in living standards in the UK. Economists expect an impending recession, and workers across different sectors are striking over pay. Matthew Ryan, Head of Market Strategy at Ebury, commented:
‘The UK’s cost of living crisis is set to get worse before it gets better, and with energy prices continuing to march to fresh highs, it seems increasingly likely that a sharp slowdown, and a potentially protracted recession, may be on the horizon.’
However, the UK economy seems to be faring better than many of its European counterparts. Ryan continues:
‘That said, we note that UK economic data continues to hold up slightly better than in the Euro Area, which appears fragile in light of the bloc’s higher sensitivity to the ongoing energy crisis in Europe.’
As a result, GBP/EUR wavered higher this morning.
Euro (EUR) Extends Decline as Economic Woes Grow
Meanwhile, the European energy crisis continues to stoke fears about the Eurozone economy.
Gas and electricity prices soared to record highs earlier this week after Russia’s Gazprom announced it would halt gas supplies via its Nord Stream pipeline for three days of ‘maintenance’.
High energy prices are hitting consumer spending and factory activity in the Eurozone, as seen in today’s PMI results.
Andrew Harker, Economics Director at S&P Global Market Intelligence, says that the Eurozone economy seems to be shrinking:
‘The latest PMI data for the eurozone point to an economy in contraction during the third quarter of the year.
‘Cost of living pressures mean that the recovery in the service sector following the lifting of pandemic restrictions has ebbed away, while manufacturing remained mired in contraction in August, seeing another record accumulation of stocks of finished goods as firms were unable to shift products in a falling demand environment. This glut of inventories suggests little prospect of an improvement in manufacturing production any time soon.
‘Declining output is now being seen across a range of sectors, from basic materials and autos firms through to tourism and real estate companies as economic weakness becomes more broad based in nature.’
Amid this gloomy news, the Euro is falling against many of its peers, including the Pound.
Pound Euro Exchange Rate Forecast: GBP/EUR to Continue Wobbling on Poor Economic Data
Looking ahead, GBP/EUR could continue to waver through today’s session as both currencies face more downbeat data.
The Confederation of British Industry’s (CBI) industrial trends orders for August unexpectedly fell into negative territory. The factory orders score declined from 8 to -7, much worse than the forecast score of 3.
This afternoon, the Eurozone’s flash consumer confidence for August is expected to slip to a fresh record low of -28. This will likely weigh on EUR.