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GBP/EUR Exchange Rate Muted as UK Services PMI Shows Contraction

European Central Bank

The Pound to Euro exchange rate was muted this morning as the UK was hit with a disappointing, yet expected services PMI.

At the time of writing the pair is currently trading around 1.1349.

Pound (GBP) Struggling to Find Direction as UK PMI Data Disappoints

The Pound found itself struggling this morning as the finalised UK services PMI data showed the sharpest contraction in the sector since May 2020 as renewed lockdown restrictions caused the UK economy to struggle.

The figure of 39.5, beating forecasts of 38.8, showed a sharp decline in the services sector.

Tim Moore, Director of Economics at IHS Markit commented on the figures saying:

‘Service providers experienced a steep downturn in business activity due to the third national lockdown in January, although the speed of decline remains much slower than last spring. Tight restrictions on travel, leisure and hospitality resulted in severely reduced trading among customer-facing businesses.’

However the results of the Services PMI were not all doom and gloom, with an upturn in business optimism also reported, Tim Moore went on to say:

‘Positive news on the UK vaccine rollout pushed up business optimism to its strongest since May 2014 and this improvement contrasted with a decline in confidence reported by service providers in the euro area during January.’

The Pound continues to find support in the success of the UK vaccine rollout, as it’s reported that the Oxford vaccine may cut transmission of the virus by two thirds.

Euro (EUR) Unchanged Despite Solid Rise in Preliminary Eurozone Inflation Rate Figures

The Euro has found much needed support this morning from the flash YoY Inflation Rate figures for the Eurozone.

The reading was 0.9%, better than the 0.5% forecast and turned positive after 5 months of deflation, the rise is also the highest in 11 months.

The increase brings hope to investors that despite prolonged lockdown restrictions across the bloc the Eurozone’s economy could be on the path to recovery.

The Eurozone does however find itself on the back foot in terms of vaccine rollout, as EUR investors remain wary of the current situation.

Pound to Euro Outlook: Bank of England Interest Rate Decision in Focus

Pound to Euro exchange rate movement will continue to be dictated by any coronavirus developments heading into the second half of the week, but also by the Bank of England’s (BoE) first interest rate decision of 2021.

No policy changes are expected from the BoE this month, though Pound investors will be keeping an eye on any comments coming from the bank.

If the BoE are positive about the economic outlook for the UK, the Pound may see itself pushed higher against the Euro.

Euro investors will however be focused on retail sales figures from across the bloc, if sales disappoint as much as Germany’s, EUR could find itself struggling further.