Pound Euro (GBP/EUR) Fluctuates as UK Economic Woes Deepen
The Pound Euro (GBP/EUR) exchange rate is trading erratically after UK services PMI confirmed to have contracted in August.
At time of writing, the GBP/EUR exchange rate is around €1.1683, relatively unchanged from this morning’s opening levels.
Pound (GBP) Dented by Contracting Service Sector
The Pound (GBP) is failing to find much support this morning as the final services PMI confirmed a contraction in August.
The quickest decline since January, the crucial services sector is confirmed to have weakened considerably amid waning domestic demand due to soaring borrowing costs and inflationary pressures. Compared to last month’s 51.5 in July, services PMI came in at 49.5, stoking recession fears once more. Tim Moore, Economics Director at S&P Global, commented on the latest data:
‘After a modest recovery over the past six months, service sector businesses are now clearly feeling the impact of rising interest rates on client demand. Worries about the broader business climate also dampened spending in August, with firms suggesting that faltering UK economic growth and sticky inflation were weighing on the outlook.’
Furthermore, Sterling is also faring worse than the Euro on a diminishing market mood. Disappointing data in China have fuelled global growth concerns once more, weighing on the Pound.
Euro (EUR) Undermined by Growing ECB Uncertainty
Meanwhile, the Euro (EUR) is also struggling for a clear direction as investors mull over the European Central Bank’s (ECB) next moves. Mounting uncertainty around monetary policy is keeping a firm lid on the Euro.
A flurry of data releases are weighing on the Euro today, with Eurozone services PMI disappointing to the downside, and producer price inflation (PPI) declining at the steepest pace since 2009. A seventh consecutive month of declining producer prices dented rate hike bets and sapped demand.
Elsewhere, the service sectors in both Germany and the Euro area have confirmed to have contracted in August. The latter registered the first decline in the service sector this year amid soaring borrowing costs and was also the sharpest since February 2021. Dr Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:
‘The eurozone didn’t slip into recession in the first part of the year, but the second half will present a greater challenge. For, the once stabilizing services sector turned into a drag for the economy while manufacturing has not bottomed out yet, most probably. The disappointing numbers contributed to a downward revision of our GDP nowcast which stands now at -0.1% for the third quarter.’
Pound Euro Exchange Rate Forecast: ECB Speeches to Dent the Euro?
Looking ahead, the Pound Euro exchange rate could see further movement with speeches from ECB policymakers this afternoon. However, with the central bank having to navigate the headache of monetary policy amidst mixed data, further ambiguity could sap demand for the Euro.
As for the Pound, a thin trading calendar this week could leave Sterling exposed to market sentiment and concerns over the vulnerability of the economy.