Pound Euro (GBP/EUR) Exchange Rate Plunges following Weak UK PMI
The Pound Euro (GBP/EUR) exchange rate fell sharply this morning after the latest flash PMIs revealed improvements in the Eurozone and a worsening outlook for the UK.
At the time of writing, GBP/EUR is trading at around €1.1356, down 0.25% on the day, having fallen sharply following the publication of the UK PMI.
Pound (GBP) Tumbles as Service Sector Contraction Worsens
The Pound (GBP) plummeted this morning after the UK’s PMI results caused concern among GBP investors.
The manufacturing PMI rose much more than forecast, improving from 45.3 to 46.7. However, the score is still deep in contractionary territory.
The more important services PMI, however, deteriorated more than anticipated. Economists had expected the services PMI score to weaken marginally from 49.9 to 49.7. Instead, it dropped to 48. As the service sector is the lifeblood of the UK economy, a deepening decline in activity could spell trouble ahead.
In the PMI report published by S&P Global, the company’s Chief Business Economist, Chris Williamson, gave his verdict:
‘Weaker than expected PMI numbers in January underscore the risk of the UK slipping into recession. Industrial disputes, staff shortages, export losses, the rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year.’
The results add to growing concern about the UK’s ailing economy, thereby putting heavy pressure on the Pound.
Euro (EUR) Enjoys Upbeat PMIs
Meanwhile, the Euro (EUR) is strengthening against the Pound as the Eurozone’s latest PMI surveys exceeded expectations.
Manufacturing in the bloc improved from 47.8 to 48.8, beating expectations of 48.5. At the same time, the service sector score rose from 49.8 to 50.7, rather than the expected 50.2. This is the first time the Eurozone service sector has seen growth since July 2022.
Chris Williamson commented:
‘A steadying of the eurozone economy at the start of the years adds to evidence that the region might escape recession… fears over the energy market in particular have been alleviated by falling prices, helped by the warmer than usual weather and generous government assistance. At the same time, supply chain stress has eased, benefitting producers most notably in Germany, and more recently the reopening of the Chinese economy has helped to restore confidence in the broader global economic outlook for 2023, propelling business optimism sharply higher.’
With the latest readings suggesting a more upbeat outlook for the Eurozone economy this year, the common currency could enjoy further support as the day unfolds.
Pound Euro Exchange Rate Forecast: CBI Data to Push Sterling Even Lower?
Looking ahead, new data from the Confederation of British Industry (CBI) this afternoon could add to Sterling’s woes. Both business optimism and industrial trends orders are forecast to show an even steeper decline than the previous readings.
Although the CBI data isn’t as impactful as the PMIs, it could add to an increasingly bleak economic outlook for the UK.
As for the Euro, Russia-Ukraine news may affect the common currency. Kyiv is currently embroiled in a corruption scandal that could strain Western support for Ukraine. Meanwhile, European allies seem divided over whether or not to provide Ukraine with Leopard 2 battle tanks.
Any further signals today that the situation is worsening – either diplomatically or militarily – could drag on the Euro.