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Pound to Euro (GBP/EUR) Exchange Rate Steady as an Uptick in French Manufacturing PMI is a ‘False Dawn’

European Central Bank

GBP/EUR Exchange Rate Rangebound as Eurozone Investors Remain Cautious on Economic Recovery

The Pound to Euro (GBP/EUR) exchange rate held steady today, with the pairing currently trading around €1.111.

The Euro (EUR) failed to benefit from a stronger-than-expected French Manufacturing PMI for July today, with the figure rising from 52 to 52.4.

Eliot Kerr, an Economist at IHS Markit, commented on the French data, saying:

‘French manufacturers saw another improvement in business conditions during July, which was predominantly supported by output growth, much like in June. However, the resurgence in activity has seemingly been driven by the unfreezing of previously existing orders, according to panellists’ comments. This suggests that the recovery in production could be a false dawn, with underlying demand yet to recover.’

In Eurozone economic news, the bloc’s Manufacturing PMI also beat forecasts and rose to 51.8. As a result, EUR investors are beginning to become more hopeful that the Eurozone’s economy could be on the road to recovery.

Chris Williamson, the Chief Business Economist at IHS Markit, was more cautious in his analysis, however, saying:

‘The next few months numbers will therefore be all important in assessing whether the recent uplift in demand can be sustained, helping firms recover lost production and alleviating some of the need for further cost cutting going forward.’

Pound (GBP) Rangebound Despite UK Factory Orders Rising at their Fastest Rate Since 2017

The Pound (GBP) failed to gain on the Euro (EUR) today following a worse-than-expected final UK Manufacturing PMI for July, which fell from 53.6 to 53.3. As a result, GBP investors have become increasingly concerned for Britain’s economic outlook in the months ahead.

Rob Dobson, the director at IHS Markit, however, was upbeat in his assessment, saying:

‘The UK manufacturing sector started the third quarter on a much firmer footing, with output growth hitting a near three-year high and new orders rising for the first time in five months. The recovery strengthened as a loosening of lockdown restrictions allowed manufacturers to restart or raise production.’

However, with the UK’s factory output growing at its fastest rate since 2017, Sterling traders are notably more optimistic today as Britain shows encouraging signs of recovery.

Meanwhile, concerns are growing over the UK’s coronavirus situation as several areas in the north of England have been forced to undertake severe lockdown measures. As a result, GBP traders are becoming increasingly concerned that a second-wave of Covid-19 could decimate the economy.

GBP/EUR Outlook: Could an Uptick in the UK Services PMI Buoy Sterling This Week?

Euro (EUR) investors will be looking ahead to Wednesday’s release of June’s Eurozone retail sales report. Any signs of improvement in the bloc’s retail sector would prove EUR-positive.

Pound (GBP) traders will also be awaiting Wednesday’s economic data releases. Any signs of an uptick in the UK Services PMI would boost Sterling.

The GBP/EUR exchange rate will remain sensitive to Britain’s coronavirus situation this week. Any further announcements that lockdowns could return would prove GBP-negative.