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Pound Sterling Euro (GBP/EUR) Exchange Rate Hits a One-Month High as German Manufacturing Plunges to Seven-Year Low

Pound Euro (GBP/EUR) Exchange Rate Rises to One-Month High as Brexit Uncertainty Begins to Clear

UPDATE: The Pound Sterling Euro (GBP/EUR) exchange rate rose to a one-month high as disappointing manufacturing data plagued the Euro.

The pairing rose by around 0.6% to €1.1215, but hit €1.1226 earlier in the morning.

Sterling rallied as Brexit uncertainty started to clear as Boris Johnson prepares to replace Theresa May as Prime Minister.

Pound Euro (GBP/EUR) Exchange Rate Edged up as the German Manufacturing PMI Plummets to 84-Month Low

The Pound Sterling Euro (GBP/EUR) exchange rate increased and the pairing is currently trading at an inter-bank rate of €1.1207.

On Wednesday, the flash German PMI composite revealed that the bloc’s largest economy was under strain as manufacturing continued to disappoint.

The German manufacturing PMI slumped from 45 in June to 43.1 in July, an 84-month low dampening sentiment in the single currency.

Meanwhile, the composite PMI slipped from 52.6 to a lower-than-forecast and six-year low of 51.4.

Added to this, job creation slowed to its weakest since April 2015, and the steepest fall in manufacturing jobs in seven years.

Commenting on the data, Principle Economist at IHS Markit, Phil Smith said:

‘The performance from Germany’s goods producers in July is the worst recorded by the survey in seven years, with the renewed weakness mainly stemming from an accelerated drop in export orders – the most marked seen in over a decade.

‘Still solid growth in the service sector means that the German economy is just about keeping its head above water for now, but even here there are signs of increased worries among companies as optimism hit a three-and-a-half year low.’

Disappointing Manufacturing PMI Casts Dark Cloud Over Eurozone

Further data from IHS Markit revealed that growth in the wider Eurozone faltered as manufacturing cast a dark cloud over the bloc.

Euro sentiment slumped as the flash estimate showed the Eurozone’s PMI composite fell from 52.2 in June to 51.5 in July.

Commenting on the flash data, Chris Williamson, Chief Business Economist at IHS Markit said:

‘The Eurozone economy relapsed in July, with the PMI giving up the gains seen in May and June to signal one of the weakest expansions seen over the past six years. The pace of GDO growth looks set to weaken from the 0.2% rate indicated for the second quarter closer to 0.1% in the third quarter.

‘The more domestically-focused service sector remained the main driver of expansion, though even here the rate of growth has slowed, likely in part due to signs of weaker labour market trends. Hiring was close to a three-year low in July.’

Sterling (GBP) Rises as Boris Johnson Prepares to Take Over as PM

Meanwhile, on Wednesday it was announced that Boris Johnson beat Jeremy Hunt by gaining 66% of the votes in the Tory leadership election.

Johnson is expected to take over from current Prime Minister Theresa May this afternoon.

While Sterling did not plummet following the announcement, the pairing could fluctuate as Johnson puts together his Cabinet.

There have been reports that there is a standoff between the new Conservative Party leader and rival Jeremy Hunt.

It has been suggested that Hunt has refused a demotion, and had offered the position of defence secretary.

It has been noted that while it will not be detrimental if he leaves the Cabinet, but it could seriously undermine Johnson’s claims he is going to reunite his party.

Pound Euro Outlook: Will EUR Slide Following a Dovish ECB Meeting?

Looking ahead to Thursday morning the Euro (EUR) could slide against Sterling (GBP) following the release of the German IFO expectations, current assessment and business climate surveys.

If IFO reveal that pessimism has increased further in the bloc’s largest economy, single currency sentiment could slide.  

It is likely the Euro will remain under pressure ahead of Thursday’s European Central Bank (ECB) meeting.

If the ECB leave rates unchanged but signal the bank is planning on cutting interest rates in the near-future, the Pound Euro (GBP/EUR) exchange rate could rise.