Weak German Factory Orders Fail to Provide Rallying Point for Struggling Pound (GBP)
Still in a persistent downturn after the severe disappointment of Monday’s UK Services PMI the GBP/EUR conversion rate has been unable to capitalise on today’s reported decline in German Factory Orders. Although this adds further fuel to fears that the Eurozone’s major economic powerhouse is increasingly feeling the effects of the wider global slowdown the single currency (EUR) has failed to particularly soften.
Earlier…
The chance for a Sterling (GBP) rally was dashed this morning when the UK Services PMI printed significantly lower than expected, pushing the GBP/EUR pairing into a renewed slump.
Euro (EUR) Surged on Decline in ‘Greenback’ (USD) Demand as Sterling (GBP) Failed to Strengthen on Improved UK Construction PMI
After a generally volatile week of trading, with less than hawkish sentiment towards the Pound (GBP) leaving it unable to sufficiently capitalise on a raft of weak data from the Eurozone, the GBP/EUR exchange rate saw a substantial drop during trading on Friday. This was attributable to the release of the US Change in Non-Farm Payrolls figure, which printed decidedly lower than expectations to dramatically dent demand for the ‘Greenback’ (USD) as the odds of a 2015 Fed rate hike receded. Given the negative correlation that exists between the ‘Buck’ and the single currency (EUR), as well as the knock-on impact of Fed dovishness on Bank of England (BoE) monetary policy, the data prompted the GBP/EUR pairing to drop to a three-month low of 1.34480.
This surge in Euro strength overshadowed the unexpectedly positive printing of the UK Construction PMI, which had risen further than forecast to 59.9 rather than 57.5. As the construction sector is one of the smaller contributors to the UK GDP, however, this strong showing was of limited encouragement to traders in spite of the wider improvement it might signal for the economy.
Unexpectedly Sharp Slowing of UK Services PMI sees GBP/EUR Conversion Rate Continue to Cede Ground Today
Economic conditions have continued to look less than optimistic for the Eurozone on Monday, as the latest raft of domestic PMIs failed to live up to forecasts. The currency union’s Services PMI slipped from 54.4 to 53.7 on the month, a further indication that growth remains slowed in many of the major economies of the Eurozone. Consequently speculation has resumed over the possibility of fresh monetary loosening measures being introduced by the European Central Bank (ECB) in order to counteract the decided weakness of the domestic economy.
Nevertheless, the GBP/EUR currency pair did not have a chance to advance on this latest shortfall as the UK Services PMI proved unexpectedly dovish. With investors having anticipated a minor gain in growth to 56 the decided decline to 53.3 was a substantial disappointment. As the service sector accounts for the largest portion of the national GDP this was a bad sign for the longer term prospects of the UK economy, with pundits inclined to move away from the Pound.
GBP/EUR Exchange Rate Forecast: Pound Hoping to Rally on Upcoming UK Industrial and Manufacturing Production Data
Tomorrow’s Retail and Construction PMIs for the Eurozone could provide further support for the single currency to extend its gains against rivals. With the US Dollar likely to pick up over the coming days, however, the Euro may experience a correlating downturn in response.
With no fresh UK data of significance due on Tuesday the Pound will be looking to Wednesday’s Industrial Production and Manufacturing Production reports in hopes of a rally. With both indicators of output expected to show improvement in August the GBP/EUR currency pair could see a resurgence on the back of more encouraging figures.
Current GBP, EUR Exchange Rates
At time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was slumped in the range of 1.3505, with the Euro to Pound Sterling (EUR/GBP) pairing rising 0.7405.
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