UK Services Beat Expectations but Euro to Pound (EUR/GBP) Exchange Rate Rises
Update 16:49 GMT 04/01/2018:
The Euro to Pound (EUR/GBP) exchange rate advanced slightly on Thursday afternoon and towards the end of the day’s European session was trending around 0.2% above the day’s opening levels.
Solid Eurozone data, as well as a lack of market interest in the US Dollar (USD), left the Euro appealing and the shared currency strengthened against the Pound. EUR/GBP trended at around 0.89 at the time of writing this update.
[Published 10:41 GMT 04/01/2018]
Thursday saw the publication of Britain’s typically influential services PMI from Markit, but the Euro to Pound (EUR/GBP) exchange rate’s movement has been limited. The pair has continued to trend near the week’s opening levels of 0.8885 after recovering from Tuesday’s fall to 0.8851.
This was despite the services PMI coming in higher than analysts expected. The services print was forecast to improve to 54.1, but instead climbed from 53.8 to 54.2.
Despite the unexpectedly strong figure however, concerns remain that Brexit uncertainty has the potential to undermine the sector in the long-term. According to Chris Williamson from Markit;
‘Digging into the details behind the resilient strength signalled by the headline numbers, the survey data reveal an economy that is beset with uncertainty about the outlook, which is in turn dampening business spending and investment.
Trends in hiring and business investment in fixed assets such as offices are showing signs of deteriorating, as is expenditure on IT, computing and other business services as worries about Brexit result in delayed spending decisions. Rising price pressures are meanwhile also hurting consumer- facing companies in particular.’
As a result, the Pound (GBP) failed to benefit notably from the report.
Euro (EUR) Exchange Rates Supported by Strong Eurozone Data Trends
2018 Euro (EUR) trade is off to a solid start, with investors being given fresh reminders of just how strongly the Eurozone economy performed right up until the end of 2017.
Thursday saw the publication of the Eurozone’s final December services and composite PMIs from Markit. While Germany’s services PMI came in at 55.8 as expected, the Eurozone’s overall services PMI beat 56.5 forecasts and printed at 56.6.
The Eurozone’s composite figures were even more impressive, rising from 57.5 to 58.1 and beating the projected figure of 58.
According to Markit’s report, this was the best rate for Eurozone growth in almost seven years and it rounded off the best year for the print in over a decade.
It followed Wednesday’s German unemployment report, which also impressed as the key unemployment rate unexpectedly improved to 5.5% rather than coming in at the forecast 5.6%.
Euro (EUR) Forecast: Eurozone Inflation Data Ahead
Friday will see the publication of the Eurozone’s December Consumer Price Index (CPI) projections. Inflation is currently forecast to have slipped from 1.5% to 1.4% year-on-year.
Inflation projections beat expectations in Germany in December, so if the Eurozone’s prints are stronger too the Euro could see stronger demand towards the end of the week.
More notable Eurozone data will be published next week, including Eurozone confidence and unemployment data.
Euro to Pound Exchange Rate Forecast: Brexit Uncertainties Retake Focus
Despite the Pound’s recently poor performance against the Euro, investors may struggle to find a reason to buy the British currency up from its lows any time soon unless the Brexit outlook begins to improve.
With UK Parliament reconvening next week, Brexit news is likely to take focus again as the government gears up for another tough year of Brexit negotiations.
The second phase of negotiations is currently expected to begin in March. Still two months away, Pound investors are anxious that the UK government will not have enough negotiation time to secure key deals before the Brexit is set to take place in March 2019.
Next week’s UK data is unlikely to be hugely influential either, so any indication from the UK government on their plans for Brexit negotiations have the potential to drive the Euro to Pound exchange rate.
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