Underwhelming Eurozone Manufacturing Sector Drags Euro (EUR) Exchange Rates Lower
Confirmation that the Eurozone manufacturing sector saw its growth slow in September helped to boost the Pound Sterling to Euro (GBP/EUR) exchange rate at the start of the week.
As the headline Eurozone manufacturing PMI weakened from 54.6 to 53.2 this prompted the single currency to falter against its rivals.
This weakness suggests that the currency union has continued to lose momentum in the third quarter, diminishing the likelihood of growth recovering before the end of the year.
Chris Williamson, Chief Business Economist at IHS Markit, commented:
‘The survey paints the worst trade picture for over five years, with export growth having slumped sharply from a series record high in late 2017 to near-stagnation in September.
‘The slowdown can be linked to sluggish demand and increased risk aversion among customers, often linked to worries about trade wars and tariffs, but also ascribed to rising political uncertainty and higher prices.’
GBP/EUR Exchange Rate Vulnerable to Weaker UK Services PMI
Further volatility is likely in store for the Pound Sterling to Euro (GBP/EUR) exchange rate on the back of September’s UK services PMI
As forecasts point towards a modest easing of sector expansion on the month this could weigh heavily on demand for the Pound (GBP).
Given that the service sector remains the primary growth engine of the UK economy any signs of weakening momentum here may encourage GBP exchange rates to slump once again.
Investor focus is also likely to centre on the Conservative Party conference, with markets wary of any fresh signs of division over Brexit.
If MPs mount a challenge against Theresa May’s position as Prime Minister the mood towards the Pound could deteriorate significantly.
On the other hand, a more unified Conservative Party may encourage investors to take greater confidence in the domestic outlook.
As long as the government remains divided over the matter of Brexit, though, the potential for GBP/EUR exchange rate gains looks limited.
Contracting German Factory Orders to Drive Further Euro (EUR) Exchange Rate Losses
Friday’s German factory orders data may undermine confidence in the single currency and the economic health of the Eurozone as a whole.
Markets anticipate a sharp contraction of -3% on the year as the manufacturing industry came under further pressure from the deteriorating global outlook.
With the Eurozone struggling to regain the growth it enjoyed in 2017 another weak figure would leave EUR exchange rates vulnerable to additional selling pressure.
Even though global trade tensions eased in the wake of the new US-Mexico-Canada trade agreement worries over trade are likely to persist in the days ahead.
A dip in August’s German producer price index could also offer a boost to the GBP/EUR exchange rate, with weaker price pressures likely to encourage the European Central Bank (ECB) to take a more cautious approach.