Pound to Euro (GBP/EUR) Exchange Rate Falls on Weak Construction Data

The Pound (GBP) to Euro (EUR) exchange rate softened on Friday as worries over the global economy and the release of disappointing Construction sector data increased concern that the UK economy is experiencing a slowdown.

Investors chose to focus on the construction output data and shrugged off the release of positive trade deficit data.

According to the Office for National Statistics (ONS) , the UK’s trade deficit narrowed in August to -£1.9 billion, an improvement on the preceding figure of £3.1 billion. The report showed that UK exports fell as demand for goods from the Eurozone waned. Despite that, the deficit fell as imports fell by a bigger margin.

‘The narrowing of the overall deficit is a good result on the face of it, but a welcome technical improvement doesn’t necessarily alleviate concerns about the UK’s trade performance. The trend on exports remains downbeat; while some of the decline can be attributed to oil; there has been a slide in manufactured exports generally over the past year. The data provide yet another reminder that the export part of the rebalancing equation continues to face some significant challenges,” said Lee Hopely, chief economist at manufacturing organisation at EEF the manufacturer’s organisation.

Adding to concerns that the UK economy is showing signs of a slowdown was a separate report, which showed that monthly Construction output declined by 3.9% in August, reversing the 1.9% gain recorded in July.

New construction projects contracted by 4.8% with declines recorded in all types of work except public house building.

Year-on-year, construction output declined 0.3% in August, marking the first fall since May 2013, when output fell 1.7%. Economists had forecast a 2.9% gain.

Some economists were sceptical about the data, as the ONS has updated its quarterly construction series.

‘We question the value of the official construction data due to the scale of revisions that occur after data are first release. The signals about the health of the sector and the economy as a whole can be utterly misleading as a result,’ said Markit’s chief economist Chris Williamson.

The Euro managed to make gains against the Pound on the back of the UK data but also received support by comments made by European Central Bank President Mario Draghi. He pledged to do more to stave off the threat of recession occurring in the Eurozone.

The Euro is forecast to remain under pressure over the coming weeks, as economic data releases are likely to show continued weakness in the currency bloc.

Data released on Friday showed that French Industrial production was flat in August but in Finland production fell sharply from -2.6% to -3.5%.