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EUR/GBP exchange rate hits twenty-one month low

EUR/GBP exchange rate flat following PMIs

The euro pound (EUR/GBP) exchange rate is trapped in a narrow range following the publication of the latest UK and Eurozone PMI data, having rebounded from an almost two-year low struck earlier this morning.

At the time of writing, the EUR/GBP exchange rate is trading at around €0.8523, virtually unchanged from this morning’s opening rate.

Pound (GBP) undermined by services PMI

The pound (GBP) is trading sideways against the majority of its peers this morning as it is being undermined by the UK’s latest PMI data for May.

The preliminary figures showed that the UK services sector has slowed more than expected, with the index coming in at 52.9, below market expectations of a more modest fall from 55.0 to 54.7.

Although the sector remained firmly in expansion territory, the larger-than-expected slowdown saw GBP struggle to garner investor attention in the aftermath of the release.

Furthermore, the data also showed that the manufacturing index came in at 22-month high of 51.3 rather than a forecast reading of 49.5, however the pound was unable to capitalise on any gains following the lacklustre services reading.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented:

‘The survey data are consistent with GDP rising by around 0.3% in the second quarter, with an encouraging revival of manufacturing accompanied by sustained, but slower, service sector growth.’

Euro (EUR) Quiet following PMI data

The euro (EUR) is treading water against the majority of its peers this morning following the Eurozone’s preliminary PMIs.

In May, the Eurozone’s manufacturing index came in above expectations at 47.4 however remained in contraction territory (below 50), while the  services index remained unchanged at 53.3 rather than rising to to 53.5 as forecast.

Dr Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented:

‘Encouragingly, new orders are growing at a healthy rate while the companies’ confidence is reflected by a steady hiring pace. This time, there is also some good news for the European Central Bank (ECB) as the rates of inflation for input and output prices in the services sector has softened compared to the month before.’

Despite the evidence of an improving manufacturing sector, the Euro has remained rangebound against the majority of its peers following the release.

EUR/GBP forecast: UK retail sales to undermine the pound?

Looking ahead, the primary catalyst of movement for the EUR/GBP exchange rate tomorrow will likely be the UK’s latest retail sales.

As retail sales are expected to report a 0.4% slump in April, Sterling sentiment is likely to be limited tomorrow should the data match expectations.  

Turning to the euro, an absence of market moving data will likely see EUR exchange rates trade without a clear direction.

However, as a safe-haven currency should markets turn to risk-on trading conditions, the euro could close the week on the front foot.