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EUR/GBP Exchange Rate Advances despite Tepid Eurozone Growth, EUR/USD Softens

  • Euro exchange rates tick higher despite weak domestic data
  • Pound struggles following disappointing construction output
  • US Dollar strengthens o positive Services growth
  • GBP exchange rates predicted to cool further as confidence recedes

Euro (EUR) Exchange Rates Climb despite Slower-than-Expected Eurozone Retail Sales

Despite the fact that European ecostats produced mostly disappointing results, the single currency climbed versus a number of its major peers on Wednesday, including the British Pound. The appreciation is likely the result of the comparatively low US Dollar trade weighting and expectations that the European Central Bank (ECB) will hold off from additional stimulus measures in the near-future.

The Eurozone Composite PMI showed that growth in the second-quarter advanced at a tepid pace, with Eurozone Services output failing to meet with expected output growth. However, growth in the Eurozone is still outpacing that of the UK and the US. In response to the Eurozone Composite PMI, Chris Williamson, Chief Economist at Markit said;


‘The final PMI data confirm the earlier flash estimate that the Eurozone economy grew at a steady but unspectacular annual rate of 1.5% at the start of the second quarter. Prices charged also continued to fall, indicating that growth is being partly fuelled by price discounting. However, while still tepid, the sustained Eurozone growth contrasts with slowdowns in the US and UK, suggesting the ECB’s more aggressive stimulus is helping to drive a steady recovery.’

Even particularly disappointing Eurozone Retail Sales figures for March wasn’t enough to offset Euro gains in the early stages of Wednesday’s European session. On the month, March’s Eurozone Retail Sales contracted by -0.5% which was a much larger contraction than the median market forecast -0.1%. On the year, Eurozone Retail Sales showed growth of 2.1% in March; once again failing to meet with the market consensus of 2.6% sales growth.

Pound Sterling (GBP) Exchange Rate Forecast to Struggle against ‘Brexit’ Uncertainty

On Tuesday the British Pound erased recent gains versus the Euro and US Dollar after domestic data showed manufacturing output unexpectedly contracted. This, coupled with a fresh EU referendum opinion poll which showed both sides of the campaign were neck-and-neck, caused sentiment towards the British asset to dampen significantly.

Further weighing on demand for the UK asset on Wednesday was yet more disappointing domestic data. April’s Construction PMI was forecast to edge lower from 54.2 to 54.0, but the result actually fell to 52.0. This adds much more pressure on the services sector, with the UK’s economic growth looking increasingly tepid.

Commenting on the British construction report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said;

‘Although UK construction grew marginally in April, clouds of uncertainty are hovering overhead, depressing the industry’s outlook. Business activity expanded at its weakest pace since June 2013, clearly pointing to a loss of momentum in the sector. Fears over weaker UK and global economic growth dealt a blow to confidence in the construction sector, leading to delays in new spending commitments. The prospect of the EU referendum and its outcome in June are likely to add to uncertainty too, with many construction firms preferring to wait and see what happens before making any decisions.’

US Dollar (USD) Exchange Rates Rally following Non-Manufacturing Data

After having erased its 2016 gains versus the British Pound towards the close of last week, the US Dollar recovered a fraction of its losses yesterday after British data weakened sentiment towards the UK unit.

However, US Dollar gains were somewhat limited thanks to a comparatively strong Euro. Expectation that the European Central Bank will look to delay stimulus measures to give current measures a chance to have a greater impact buoyed demand for the common currency.

Data this afternoon showed that the ISM Non-Manufacturing/Services Composite significantly bettered expectations. As a result, the US Dollar strengthened as bets improve regarding the timing of the next Fed rate hike.

The Euro to Pound Sterling (EUR/GBP) exchange rate was trending within the range of 0.7891 to 0.7941.

The Euro to US Dollar (EUR/USD) exchange rate was trending within the range of 1.1466 to 1.1529 during Wednesday’s European session.