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Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Pound Falls as Services Sector Growth Slows to 19-Month Low

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The Pound Sterling to Euro (GBP/EUR) exchange rate softened further on Tuesday after data showed that activity in the UK’s dominant services sector slowed to its lowest level in 19-months in December, adding to speculation that the Bank of England will leave interest rates unchanged.

According to the Markit/CIPS UK Services Purchasing Managers Index (PMI), activity in the nation’s service sector slowed sharply to its weakest level since mid-2013 and the PMI experienced it biggest decline since 2012. The PMI fell from November’s figure of 58.6 to 55.8 in December. The slowdown was also sharper than economist expectations for a number of 58.5.

Despite the sharp drop activity in the sector remains well above the 50 mark, that divides expansion from contraction. Activity in the UK also remains more buoyant than in the Eurozone.

The slowdown in the service sector rounds up a dismal run for UK PMI figures for December. Both the manufacturing and construction PMI reports showed slowdowns in their respective sectors and suggests that the UK economy is cooling off after strong improvements last year.

The disappointing PMI suggests that the UK economy could be too fragile to warrant the Bank of England raising interest rates, as a result the Pound weakened sharply against the US Dollar and other major peers.

‘The loss of momentum toward the year end will no doubt fuel worries that the upturn is too fragile to withstand higher interest rates. The survey data provide policy makers with a mixed bag of news on the health of the economy,’ said Markit chief economist Chris Williamson

Eurozone posts slowest growth in over a year

Sterling softened against the Euro following the release of the data but further losses were restrained as data out of the Eurozone painted a rather grim picture for the single currency bloc’s fortunes for 2015.

Data compiled by Markit showed that the Eurozone’s private sector recorded its weakest run of growth in over a year and added to speculation that the European Central Bank will have to introduce more monetary easing measures to support the faltering economy.

‘Of greatest concerns are the ongoing downturns in France and Italy, alongside the stuttering performance seen in Germany. Any signs of life, with Ireland and Spain most notable in seeing their best growth spells since the global financial crisis, are in danger of being extinguished by malaise spreading from the region’s largest economies unless business and consumer confidence revives,’ said Chris Williamson.

The Pound to Euro exchange rate is trading in the range of 1.275