Pound euro exchange rate reaches two-year high following PMI data
The pound euro (GBP/EUR) exchange rate is trending broadly higher this morning, and has reached a fresh two-year high, following the publication of the UK’s and the Eurozone’s latest PMI data.
At the time of writing, GBP/EUR is trading at around €1.1960, up roughly 0.3% from this morning’s opening levels.
Pound (GBP) undermined by UK PMI
Although up against the euro (EUR), the pound (GBP) is struggling to garner investor attention elsewhere this morning following the publication of some below-forecast PMI data.
The UK’s preliminary PMI reading for September reported that both the services and manufacturing indices came in below forecast, however, remained in the expansion zone (a reading above 50).
The UK’s all-important services index fell from 53.7 to 52.8 rather than a more modest 53.5 estimate, while the UK’s manufacturing index fell from 52.5 to 51.5 rather than staying in line with expectations and remaining unchanged.
Although the latest PMI reading did print below market expectations and has stymied the pound this morning, the overall reading still points to moderate growth levels in the UK which has kept GBP’s losses fairly minimal.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence commented:
‘A slight cooling of output growth across manufacturing and services in September should not be seen as too concerning, as the survey data are still consistent with the economy growing at a rate approaching 0.3% in the third quarter, which is in line with the Bank of England’s forecast.’
Euro (EUR) weakens following downbeat PMIs
The euro is experiencing fresh headwinds this morning and is slipping against the majority of its peers as it is being hobbled by the publication of the Eurozone’s latest PMI data.
Both the preliminary manufacturing and services indices came in below forecast in September, with the manufacturing index slipping further into contraction territory (a reading below 50) while the services sector slimly remained in the expansion zone (a reading above 50).
The worse-than-expected PMI print has put additional pressure on the euro this morning, as the data has solidified current Eurozone economic pessimism.
Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:
‘The eurozone is heading towards stagnation. After the Olympic effect had temporarily boosted France, the eurozone heavyweight economy, the Composite PMI fell in September to the largest extent in 15 months. The index has now dipped below the expansionary threshold. Considering the rapid decline in new orders and the order backlog, it doesn’t take much imagination to foresee a further weakening of the economy.’
Pound euro exchange rate forecast: German data in the spotlight
Looking ahead, the primary catalyst of movement for the pound euro exchange rate looking at tomorrow will likely be the publication of Germany’s latest IFO business climate index.
Scheduled for release on Tuesday, the latest index is forecast to report another downturn in September’s reading.
As the data came in at a 6-month low in August, further deterioration in business sentiment in the Eurozone’s largest economy will likely weigh on EUR exchange rates moving into tomorrow’s European trading session.
Turning to the pound, UK data will be thin on the ground tomorrow, and as such, could see GBP exchange rates trade mostly in line with risk dynamics.
Should markets engage in upbeat trade, Sterling sentiment could climb, however, should investors opt for safer assets, the increasingly risk-sensitive pound will likely trade on the back foot.