Surprise Manufacturing PMI Improvement Lifts Pound Euro Exchange Rate
A better-than-expected showing from October’s UK manufacturing PMI helped to give the Pound Sterling to Euro (GBP/EUR) exchange rate a fresh lift.
Although the manufacturing sector remained in a state of decline investors still took encouragement from a modest improvement in the headline PMI, which rose to a six-month high of 49.6.
However, despite the initial positive impact the underlying picture was less encouraging.
As Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, commented:
‘A minor uplift in overall purchasing activity did little to ease the agony for manufacturing companies in October as the sector remained submerged in contraction terrain and heading for recession. Business was still restrained by the Brexit leash, as firms were subjected to the struggle against client indecision and also the downpull of a slowing global economy.’
As markets continue to digest the data, Sterling may struggle to hold onto a positive footing for long.
GBP/EUR Exchange Rate Vulnerable to Disappointing UK Services PMI
Further volatility is likely for the GBP/EUR exchange rate on the back of Tuesday’s UK services PMI.
Given that the service sector accounts for more than three-quarters of economic activity in the UK, any fresh weakness could put a significant dampener on the Pound.
Forecasts point toward the PMI remaining in contraction territory, showing only a modest uptick from 49.5 to 49.8 on the month, offering further evidence of an economic slowdown.
As long as the third quarter UK GDP looks set to demonstrate a fresh loss of momentum, reflecting three weak months of PMIs, the mood towards the Pound looks set to sour.
On the other hand, if the service sector can deliver a return to positive growth the GBP/EUR exchange rate could find a rallying point.
A solid showing from the services PMI could easily outweigh the negative influence of underwhelming manufacturing and construction sector performances, boosting the Pound.
However, an ongoing sense of political uncertainty may still drag on GBP exchange rates in the weeks ahead.
Eurozone Manufacturing PMI Data Unlikely to Fuel Single Currency Volatility
Monday’s finalised set of Eurozone manufacturing PMIs is unlikely to provoke any significant shift in sentiment towards the shared currency.
As investors have already largely priced in the impact of weak manufacturing sector activity the potential for further EUR currency rate downsides appear limited.
Any fresh increase in global trade tensions could put pressure on the single currency, however, thanks to the negative impact the trade slowdown has already had on the Eurozone.
With confidence in the economic outlook limited, EUR exchange rates may struggle to find much traction in the near term.