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Pound to Euro Exchange Rate Reaches Weekly Highs despite Slowing UK Manufacturing

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Pound to Euro Exchange Rate Outlook Rising Despite Mixed UK Data

The past week’s UK data has given investors little reason to keep buying the Pound to Euro (GBP/EUR) exchange rate. Despite this, GBP/EUR has recovered from its weekly lows and now appears on track to end the week above its opening levels.

GBP/EUR began the week at the level of 1.1391 and trended lower until Tuesday, hitting a low of 1.1326. Since then the pair has gradually climbed and by Thursday morning the pair was trending near the level of 1.1450.

Sterling’s (GBP) gains were limited by Markit’s latest UK manufacturing PMI, which fell short of expectations in the January print.

The figure was forecast to rise from 56.3 to 56.5 in January, but instead slipped from a revised 56.2 to 55.3. This was the lowest growth rate for UK factories in seven months.

However, not all the manufacturing news was disappointing. According to the Markit report, export orders rose over the last month at one of the quickest rates in four years.

Euro (EUR) Exchange Rates Supported by Domestic Manufacturing Stats

The Euro (EUR) outlook has not been notably influenced by recent Eurozone ecostats and they have largely come in close to market expectations. However, they have helped the shared currency to limit its losses again a strengthening Pound.

Thursday saw the publication of the Eurozone’s final January manufacturing PMIs from Markit.

Germany’s key manufacturing print fell slightly short of 61.2 projections, slowing from 63.3 to a still respectable 61.1. The Eurozone’s overall manufacturing figure slipped from 60.6 to 59.6 as expected.

According to Chris Williamson, Chief Economist at IHS Markit;

‘The Eurozone’s manufacturing boom continued in full swing in January. Output grew at one of the fastest rates recorded over the survey’s 20-year history, matched by a further near-record surge in new orders.

Employment likewise showed one of the largest gains yet recorded by the survey as firms expanded capacity in line with rising demand.’

The shared currency has also been supported by solid Eurozone growth data and a rise in core inflation in recent sessions, but as the shared currency outlook is largely unchanged GBP/EUR has remained strong.

Pound (GBP) Boosted by Bank of England (BoE) Hopes

Despite concerns about divisions within the UK government that could have an impact on the Brexit process, Sterling has seen stronger support in recent sessions amid fresh Bank of England (BoE) speculation.

BoE Governor Mark Carney hinted in a speech this week that the bank would be refocusing on tackling UK inflation. This has boosted bets that the bank could tighten UK monetary policy at a faster pace than previously expected.

UK data has also generally continued a trend of indicating that Britain’s economy is more resilient during the Brexit process than expected. Nationwide’s January housing prices report beat expectations in both prints on Thursday.

Pound to Euro (GBP/EUR) Forecast: Services PMI and Bank of England (BoE) in Focus

The Pound is likely to continue to drive Pound to Euro (GBP/EUR) exchange rate movement in the coming sessions, as key UK data will be published at the beginning of next week followed by the Bank of England’s (BoE) first 2018 policy decision on Thursday.

Monday will see the publication of Markit’s January services PMI. As services make up a notable chunk of Britain’s economic activity this print is likely to be more influential than the manufacturing data.

It is forecast to have slipped from 54.2 to 53.8 but if it beats expectations it could put additional pressure on the Bank of England to take a more hawkish tone on monetary policy.

The BoE is expected to leave monetary policy frozen during its policy decision next week, but the tone the bank takes will be vital to the Pound outlook.

If the bank continues to hint that tackling strong inflation is a priority and expresses confidence in wage growth, Sterling could continue its recent strong streak.

Friday’s data is unlikely to influence the GBP/EUR outlook notably and the Eurozone economic calendar will be quieter in the coming sessions. The pair could still be influenced by Eurozone services and retail sales stats next week.