Pound Euro Exchange Rate Traded Erratically as PMIs Highlight Recession Fears
The Pound Euro (GBP/EUR) exchange rate is fluctuating this morning in the wake of downbeat PMI data for both the Eurozone and UK.
At time of writing the GBP/EUR exchange rate is trading around €1.1553, relatively unchanged from this morning’s opening levels.
Pound (GBP) Uninspired by Better-than-Expected PMI Data
The Pound is struggling to find much demand despite PMI data printing better than expected. Both the manufacturing and services sector printed above forecasts, but remain in contraction territory, highlighting the ever-slowing economy.
With expectations of a further slowdown, both manufacturing and services remain unchanged from October’s figures. But marking a fourth consecutive month of slowdown for manufacturing, and a second straight month for services, the release did little to buoy investors. Another fall in business activity merely highlights the signs that the UK is in a recession.
Decelerating activity remains consistent with a Q4 contraction in GDP, signifying a technical recession after two straight quarters of slowdown. Chris Williamson, Chief Business Economist at S&P, warns that slowdowns are likely to worsen:
‘If pandemic lockdown months are excluded, the PMI for the fourth quarter so far is signalling the steepest economic contraction since the height of the global financial crisis in the first quarter of 2009, consistent with the economy contracting at a quarterly rate of 0.4%.
‘Forward-looking indicators, notably an increasingly steep drop in demand for goods and services, suggest the downturn will deepen as we head into the new year.’
Euro (EUR) Undermined by Mounting Recession Fears
Meanwhile, the Euro is struggling against its peers this morning as manufacturing and services PMIs highlight growing recession fears.
A slightly better-than-expected Eurozone manufacturing PMI avoided a tenth straight decline in activity as it printed at 47.3. Services also beat forecasts but remain deep in contraction territory at 48.6. Chris Williamson, Chief Business Economist at S&P Global, also weighed in on the Eurozone PMI data:
‘A further fall in business activity in November adds to the chances of the eurozone economy slipping into recession. So far, the data for the fourth quarter are consistent with GDP contracting at a quarterly rate of just over 0.2%.’
‘However, the November PMI data also bring some tentative good news. In particular, the overall rate of decline has eased compared to October.’
Lending some modest support to the Euro are comments from Germany’s Chancellor Olaf Scholz. Commenting on the energy crisis, Scholz gave reassurances that energy security is all but guaranteed this winter. He added:
‘We won’t be able to completely stop energy price increases with subsidies, but we can reduce them to a bearable level.
We’re doing away with the failings of an energy and trade policy that has led us into one-sided dependence on Russia and China in particular.’
Pound Euro Forecast: Key Speeches to Bolster the Pound?
Looking ahead, the Pound Euro exchange rate could see further movement on speeches from Chancellor Jeremy Hunt as he addresses the Treasury Select Committee. Bank of England (BoE) Chief Economist Huw Pill is also set to speak, any further comments on monetary policy could inspire movement.
Meanwhile, the Euro could be left to trade on market sentiment alone. A lack of major data could see further developments in Ukraine influence the single currency.