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Euro Pound (EUR/GBP) Exchange Rate Drops Ahead of UK Election Announcement

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EUR/GBP Exchange Rate Falls as PMI Data Disappoints

The Euro Pound (EUR/GBP) exchange rate is weakening today ahead of the long-awaited announcement of the UK’s new Prime Minister. The prospect of imminent policy change cheers Pound (GBP) investors while the Euro (EUR) comes under pressured from a disappointing services PMI.

At the time of writing, EUR/GBP is trading at £0.8624, down 0.3% from today’s opening levels.

Pound (GBP) Climbs although Services PMI Falls

The Pound is rising against the majority of its peers today, supported by the prospect of a new prime minister and an end to weeks of suspense. Sterling investors are hopeful that the new PM will implement financial support measures soon after entering office, addressing a cost-of-living crisis close to spiralling out of control.

Capping a more significant uptrend is the release of the UK’s finalised services PMI, which has revealed that the service sector expanded by less than previously thought in August. Moreover, the composite PMI fell unexpectedly into contraction territory, printing at 49.6 rather than the 50.9 forecast.

Commenting on the data, S&P Global Market Intelligence’s Chris Williamson warns:

‘The incoming prime minister will be dealing with an economy that is facing a heightened risk of recession, a deteriorating labour market and persistent elevated price pressures linked to the soaring cost of energy.’

Later today, a speech from Bank of England (BoE) policymaker Catherine Mann will address UK inflation and monetary policy ahead of the central bank’s interest rate decision next week. Mann is generally considered to be a hawk: therefore, her stance on the BoE’s forward action is likely to be bold.

Euro (EUR) Dented by Weak Economic Data, Gas Supply Headwinds

The Euro is plummeting against its peers today as the Eurozone’s finalised services PMI fell unexpectedly into contraction territory. August’s release printed at 49.8 this morning rather than 50.2 as expected.

Further depressing EUR sentiment is news that Russia is suspending gas flows via the Nord Stream 1 pipeline indefinitely. This follows an organised 3-day shutdown during which the country claimed to be conducting maintenance.

Spurring the decision may be an agreement amongst G7 representatives to cap the price of Russian oil exports – although Russia claims the delay in reopening is due to a fault with the pipeline.

Jacob Mandel, a senior associate for commodities at Aurora Energy Research, assesses the situation, saying the effects of the supply cut would depend on Europe’s ability to bring in gas from other sources.

‘Supply is hard to come by, and it becomes harder and harder to replace every bit of gas that doesn’t come from Russia,’ Mandel commented.

Elsewhere, a risk-off mood is illustrated by tumbling equities and broad strength in the US Dollar (USD).

Despite its relative safe-haven status in comparison with the Pound, the Euro remains sensitive to bearish trading sentiment and is pressured by strength in the ‘Greenback’ due to the currencies’ strong negative correlation.

EUR/GBP Exchange Rate Forecast: Election Result to Inspire Movement?

The most immediate concern for investors today is the result of the UK’s prime ministerial leadership contest. Liz Truss is expected to succeed, in which case UK households and business may benefit from a price freeze on energy bills.

Aside from political stimulus, EUR/GBP may also be influenced by Catherine Mann’s speech this afternoon, depending on what it signals for the Bank of England.

Into tomorrow, German factory orders and British retail data are likely to affect the exchange rate. If UK retail sales increased in the year to August by less than in the last measured period, GBP could fall; meanwhile, an extended decline in German factory output is likely to exert pressure upon the single currency.