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Pound to Euro Exchange Rate Forecast: Markit Services PMIs Could Inspire Movement in GBP/EUR

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Pound to Euro Exchange Rate Movement Narrow as Both Currencies Weaken

Despite German political anxiety on Monday, the Pound Sterling to Euro (GBP/EUR) exchange rate’s strength was limited due to Brexit jitters continuing to weigh on Sterling (GBP).

Last week, GBP/EUR tumbled from the week’s opening levels of 1.1376 to around 1.1296. The pair also touched on a quarterly low of 1.1254 on Friday.

This was the longest the pair had trended below the key level of 1.13 since March and the pair struggled to climb on Monday too. At the time of writing, GBP/EUR continued to trend near the week’s opening levels.

Political jitters and trade concerns weighed on the appeal of both the Pound (GBP) and Euro (EUR) early in the week, so the currencies did not significantly benefit from Monday’s manufacturing PMIs from Markit.

Markit’s latest manufacturing PMIs beat forecasts in the UK but fell short in the Eurozone. However, some of the day’s other Eurozone data helped support the shared currency instead.

Pound (GBP) Exchange Rates Fail to Strengthen Despite Solid Manufacturing Figures

Demand for the Pound was kept under pressure by Brexit uncertainties and general economic gloom on Monday, preventing the Pound from capitalising on the day’s solid UK ecostats.

Markit published its June UK manufacturing PMI report on Monday, and the result beat forecasts. Manufacturing was expected to have slowed to 54, but printed a surprisingly solid 54.4.

The previous figure was revised slightly lower through, from 54.4 to 54.3.

On top of this, Markit’s report noted that businesses weren’t feeling particularly optimistic about the manufacturing outlook.

According to Rob Dobson, Director of IHS Markit, the chances of a full recovery in new order growth are quite low too:

‘How likely such a revival is remains in some doubt, with the June survey also seeing business optimism drop to a seven-month low amid rising concerns about possible trade tariffs, the exchange rate and Brexit uncertainty.

… With industry potentially stuck in the doldrums, the UK economy will need to look to other sectors if GDP growth is to match expectations in the latter half of the year.’

Businesses are becoming increasingly anxious that the UK and EU will not be able to reach major agreements in Brexit negotiations due to a lack of progress so far this year, which has also kept the Pound unappealing.

Euro (EUR) Exchange Rates Supported by Unemployment Data Despite German Jitters

German political jitters weighed heavily on the Euro when markets opened on Monday, as concerns worsened that German Chancellor Angela Merkel’s coalition government was becoming more fragile.

The leader of the Christian Social Union (CDU) party, Horst Seehofer, reportedly offered to resign as leader in response to last week’s news that the EU had reached a key deal on the migration crisis.

As the CDU party is a key part of Merkel’s coalition government, the news made investors jittery and worsened concerns that Merkel’s government would only show more cracks in the future.

On top of political uncertainties, Markit’s final June manufacturing PMIs for the Eurozone fell slightly short of expectations when they printed on Monday. The Eurozone’s overall manufacturing print came in at 54.9, rather than the projected 55.

Despite this though, the Euro was able to avoid falling against Sterling.

Demand for the Euro was bolstered by a surprisingly optimistic Eurozone unemployment figure. May’s Eurozone unemployment rate was forecast to remain at 8.5% but it instead unexpectedly improved to 8.4%. The previous figure was also revised to 8.4%.

Pound to Euro (GBP/EUR) Forecast: Eurozone Retail Sales and Services PMIs Ahead

Euro movement could see a little more direction in the coming days if German political jitters ease or if upcoming Eurozone ecostats surprise investors.

Tuesday will see the publication of the Eurozone’s May retail sales results, as well as French retail data. Britain’s June construction PMI will be published on Tuesday too.

Wednesday’s data will be even more influential, with the Eurozone’s final June PMIs due for publication. If they fall short of expectations like the manufacturing PMI did, the Euro is likely to weaken in the second half of the week.

However, the Pound to Euro (GBP/EUR) exchange rate could fall instead if Britain’s services PMI disappoints investors on Wednesday.

Sterling traders are already anxious about Britain’s economic outlook, so if Britain’s services PMI disappoints and indicates UK economic activity is weaker than expected, it is likely to undermine Pound trade.

Of course, the Pound to Euro (GBP/EUR) exchange rate outlook will continue to be influenced by any changes in German political developments too.