EUR/GBP Exchange Rate Stumbles as Eurozone PMIs Print Below Expectations
The Euro Pound (EUR/GBP) exchange rate is losing ground today. This comes after the Eurozone’s latest flash PMI results were released, reporting further contractions in Eurozone manufacturing and service sector activity.
At the time of writing, the EUR/GBP exchange rate is trading at around €0.8581, 0.3% down from its opening rate of €0.8609.
Euro (EUR) Stumbles as Business Activity Contracts
The Euro (EUR) is slipping today against some if its counterparts. This comes after the Eurozone PMIs were released this morning.
The services PMI decreased to 48.1 in December, from 48.7 in the previous month, with analysists predicting an increase to 49 points. Meanwhile, the manufacturing PMI printed at 44.2 in December, the same as November, and below market predictions of 44.6 points.
This disappointing data paints a negative picture for the Eurozone economy, with private sector activity deteriorating at a sharper-than-expected pace. This has dented the Euro throughout this morning’s European trading session.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:
‘Once again, the figures paint a disheartening picture as the eurozone economy fails to display any distinct signs of recovery. On the contrary, it has contracted for six straight months. The likelihood of the eurozone being in a recession since the third quarter remains notably high.’
This weaker-than-expected data may deter Euro investors, as a weakening Eurozone economy may mean that European Central Bank (ECB) rate cuts could be more likely.
Pound (GBP) Bolstered by Service Sector Expansion
The Pound (GBP) is climbing this morning, following the release of better-than-expected UK PMI results.
The surveys reported that service sector activity increased to 52.7 points, showing another expansion in activity from the previous 50.9 points, and above market predictions of 51. However, the manufacturing PMI fell to 46.4 in December, down from 47.2 in the prior month and missing expert forecasts of 47.5.
The latest survey said:
‘UK private sector output expanded for the second month running in December, which continued a modest recovery from the downturn seen during the three months to October. Higher levels of business activity were supported by a renewed improvement in order books, alongside efforts to work through post-pandemic backlogs.’
With the most recent PMI results suggesting a resilient UK economy, this has lent the Sterling some support today, especially after yesterday’s hawkish Bank of England (BoE) decision, reinforcing expectations that the bank’s ‘higher for longer’ approach to monetary policy is here to stay.
EUR/GBP Forecast: Positive German Data to Boost the Euro?
Looking ahead to next week, Germany’s latest business climate indicator is the focus at the beginning of the session. Economists expect to see a modest improvement in sentiment among firms in the Eurozone’s largest economy. If the index prints as expected, EUR could tick higher.
On Wednesday, the German consumer confidence index is set for release. With last month’s reading reporting a rise, could a further improvement in consumer confidence boost the Euro moving forward?
Turning to the Pound, on Wednesday the UK’s yearly inflation rate is also expected. Should it drop as expected, this could trim Sterling’s gains from this week. However, signs of sticky inflation could boost BoE expectations, potentially lifting the Pound.
