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Disappointing UK Manufacturing Boosts Euro Pound Exchange Rate as Brexit Jitters Persist

As the latest raft of Eurozone PMIs proved mixed the Euro struggled to find any particular support at the start of the week.

Of particular concern was the Spanish manufacturing PMI, which slipped from 54.8 to 53.9 in March to point towards a loss of momentum within the economy.

However, the corresponding Italian figure bettered expectations, with the manufacturing sector showing its fastest growth since March 2011.

Alongside steady showings from France and Germany this offered encouragement to EUR exchange rates, suggesting that the Eurozone remains in relatively robust health.

Commentary from European Central Bank (ECB) executive board member Benoit Coeuré hampered demand for the Euro at the start of the week, though.

The policymaker expressed contentment with the current policy outlook of the central bank, denting the odds that the ECB will return to a hawkish bias in the near future.

Even so, the ECB could come under greater pressure to tighten monetary policy in the coming months if the Eurozone economy continues to demonstrate strength.

As Chris Williamson, Chief Business Economist at IHS Markit, noted:

‘Prices charged for goods leaving the factory gate are consequently rising at the fastest rate since mid-2011, despite March seeing a drop in the price of oil and a stronger euro against the US dollar, as supplier price hikes are passed on to customers.’

If ECB President Mario Draghi shows any greater signs of hawkishness in a speech on Tuesday the EUR GBP exchange rate could find a stronger rallying point.

On the other hand, any comments playing down the prospect of any tapering of the quantitative easing program in the near future could reduce the appeal of the single currency.

Confidence in the Pound, meanwhile, weakened in response to a disappointing manufacturing PMI report.

Rather than rising as expected the PMI slipped from 54.6 to 54.2 in March, suggesting that the sector came under greater pressure.

This did not encourage hopes for the corresponding services PMI, which could weigh heavily on Sterling if the primary economic engine of the UK shows signs of faltering.

Political worries could also limit demand for Sterling this week, with tensions on the rise over the matter of Gibraltar.

Even though Brexit negotiations have yet to get underway this does not appear to bode well, increasing the sense of risk associated with the Pound.

If Theresa May is seen to be moving away from the more conciliatory tone expressed in the Article 50 letter this could boost the EUR GBP exchange rate higher, raising the odds of the UK facing an exit via the cliff edge.

Current EUR GBP Interbank Exchange Rates

At the time of writing, the Euro Pound exchange rate was trending higher at 0.85. Meanwhile, the Pound Euro exchange rate was on a downtrend around 1.17.