Pound Euro (GBP/EUR) Exchange Rate Subdued on Mixed PMI Releases
The Pound Euro (GBP/EUR) exchange rate is off to a slow start in 2024 as respective PMI results leave the pairing trapped in a narrow range.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1541, virtually unchanged from this morning’s opening rate.
Pound (GBP) Trading Sideways amid Fall in Manufacturing PMI
The Pound (GBP) is rangebound this morning, as the UK’s latest manufacturing PMI printed below expectations.
December’s finalised manufacturing PMI printed at 46.2 missing the preliminary estimate of 46.4 and down from November’s seven-month high of 47.2.
Rob Dobson, Director at S&P Global Market Intelligence, comments:
‘UK manufacturing output contracted at an increased rate at the end of 2023. The demand backdrop also remains frosty, with new orders sinking further as conditions remain tough in both the domestic market and in key export markets.’
While the continued weakness in the UK’s factory sector is a concern to GBP investors, losses in the Pound appeared limited as the more vital services sector is expected to have continued to expand at the end of 2023. Which could help the UK to stave off a recession.
Euro (EUR) Fluctuates even with Higher PMI Results
The Euro (EUR) is wavering against its counterparts today, even though the latest Eurozone manufacturing PMI printed above expectations.
The Eurozone’s finalised manufacturing PMI printed at 44.4 in December, surpassing preliminary estimates it would hold at 44.2.
While the data beat forecasts, the bloc’s manufacturing sector remains in contraction, which appears to be limiting the Euro’s upside potential today amid concerns this points to the Eurozone slipping into a recession in the second half of 2023.
Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:
‘Amid a relentless slump in the manufacturing sector of the Eurozone, the HCOB PMI has shown little improvement compared to November. This indicates a sustained decline in both activity and demand for manufactured goods. The sluggishness of new orders echoes the gloom, retreating almost as swiftly as the previous month. Our Nowcast model aligns with this pessimistic trend, strongly suggesting a contraction in GDP for the fourth quarter. If this holds true, it paints a bleak picture for the Eurozone and would mean that the Eurozone entered a recession in the third quarter.’
The single currency’s negative correlation with the US Dollar (USD) also appears to be acting as a headwind for the Euro this morning.
Pound Euro Exchange Rate Forecast: Rebound in Eurozone Inflation to Bolster EUR?
Looking ahead, the first week of 2024 is likely to see movement in the Pound Euro exchange rate driven primarily by the Eurozone’s latest consumer price index.
December’s preliminary CPI figures are expected to report Eurozone inflation accelerated from 2.4% to 3% amid an uptick in energy prices.
Such a sharp jump in inflationary pressures is likely to weaken expectations that the European Central Bank (ECB) may start cutting interest rates in the first half of 2024. Potentially turbocharging the Euro in the process.
In the meantime, the Pound may see some support following the publication of the UK’s latest services PMI if December’s finalized figures confirm the sector expanded at its fastest pace in six months.