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Pound Euro (GBP/EUR) Exchange Rate Slumps as German Manufacturing on ‘Way to Recovery’

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Pound Sterling Euro (GBP/EUR) Exchange Rate Falls as German PMI Jumps to 11-Month High

The Pound Sterling Euro (GBP/EUR) exchange rate slipped, leaving the pairing trading at around €1.1844.

The single currency edged higher on Monday after data showed the German manufacturing PMI rose to an 11-month high of 45.3 at the start of 2020.

Added to this, new orders showed the smallest fall since October 2018 and firms’ optimism rose.

Commenting on this morning’s data, Phil Smith, Principal Economist at IHS Markit said:

‘Germany’s manufacturing sector showed more signs of being on the way to recovery in January, with the PMI climbing further from last September’s nadir to its highest for 11 months.

‘The recent improvement in manufacturers’ expectations extended into January, with firms noting the influence of easing trade tensions and the prospect of a revival in exports. However, the picture has change somewhat in the short space of time since the survey was conducted [13-24 January], with the disruption to business in China from the coronavirus bound to have an impact on German manufacturers’ exports and sentiment in the coming months.’

UK Manufacturing Hits Nine-Month High

The Pound continued to fall as the UK manufacturing PMI edged to a nine-month high of 50.

New orders, business confidence and employment rose, however new export orders slumped for the third month in a row.

Commenting on the data, Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply noted:

‘A fairly muted start to the year as the sector crawled towards equilibrium and the no-change mark, and the losses from the end of 2019 were recouped on the crest of a gentle domestic wave.

‘With a small uplift in employment levels and optimism at an eight-month high, this is certainly better news than we’ve had in a while. Hopefully the momentum will now build in spite of potential obstacles and the sector pulls itself up by its bootstraps into growth next month as the UK negotiates its position with the EU.’

UK Lays Out Tough Stance for UK-EU Talks          

Sterling slipped as the UK laid out a tough stance for its future talks with the European Union after leaving the bloc on Friday evening.

Prime Minister Boris Johnson has said that there is ‘no need’ for Britain to follow the EU’s rule.

Johnson is expected to give a speech later today in which he will call for a Canada-style free trade agreement. Sterling sentiment slipped as the Prime Minister is also expected to threaten to walk away if a deal cannot be struck.

He is expected to say:

‘There is no need for a free trade agreement to involve accepting EU rules.

‘We have made our choice: we want a free trade agreement, similar to Canada’s, but in the very unlikely event that we do not succeed, then our trade will have to be based on our existing Withdrawal Agreement with the EU.

‘The choice is emphatically not ‘deal or no-deal’. The question is whether we agree a trading relationship with the EU comparable to Canada’s – or more like Australia’s.’

Pound Euro Outlook: Will GBP Extend its Slump?

Looking ahead to Tuesday, the Pound (GBP) could slump further against the Euro (EUR) following the release of UK construction data.

If the UK’s construction PMI disappoints, falling further into contraction territory, Sterling will slide.

Meanwhile, December’s Eurozone Producer Price Index (PPI) could provide a slight upswing of support for the single currency.

If inflation rises higher than expected, the Pound Euro (GBP/EUR) exchange rate will fall further.