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Euro Pound Sterling (EUR GBP) Slides as Eurozone PMIs Disappoint

  • Eurozone PMIs Disappoint Sterling Capitalises on Drop in Eurozone Manufacturing, Services and Composite PMIs
  • UK US Trade Talks Begin Could Generate Extra $50Bn in Business by 2030
  • Significant Data Releases on the HorizonUK GDP Wednesday, French GDP and German CPI Friday

While last week was an extremely positive one for the Euro to Pound exchange rate, this week has begun with the Euro on the back foot.

EUR/GBP declined as the Eurozone manufacturing and services PMIs came in lower than expected this morning, with the composite figure printing at 55.8, down from the previous 56.3 and indeed below the forecast of 56.2.

Whilst these figures are still comparatively strong, the fact that they missed targets suggests that the Eurozone’s economy might not be growing at the speed necessary for the European Central Bank (ECB) to start bringing about an end to its programme of stimulus.

Regardless, some analysts were not overly disappointed by the report, as the Eurozone’s private activity only slightly slowed from what was one of the best quarters in years, and predictions that the quarter ahead will be solid still reign.

UK US Trade Talks Commence, Sterling (GBP) Gains on Improved Confidence

The declines in the EUR/GBP exchange rate also occurred as today marks the beginning of UK US trade talks – the preliminary meetings that will sketch out the details of a post-Brexit trade deal.

International Trade Secretary Liam Fox will be meeting with US counterpart Robert Lighthizer in Washington, but while meetings can be held, the UK cannot officially sign a trade deal with the US until Brexit has taken place.

However, news that trade talks are taking place has been enough to bolster investor confidence in Sterling, particularly with the possibility that it could result in an extra $50Bn in business by 2030 – something that could lessen the perceived damaged caused by leaving the EU’s single market.

The Department for International Trade echoed this sentiment, describing the goal of the talks to be in:

‘…providing certainty, continuity and increasing confidence for UK and US businesses as the UK leaves the EU’.

Given the sheer length of time that the Brexit negotiations are expected to take, however, any benefits for the UK’s economic outlook from the trade talks are far in the distance.

EUR GBP Forecast: Euro Gains likely if UK GDP Disappoints

This week is a significant one for UK and Eurozone data, with UK GDP due Wednesday, German retail sales due Thursday and French GDP and German CPI both due on Friday.

Currently UK GDP growth is expected to have eased from 2% year-on-year to 1.9%. Should this materialise then the Euro may well find the opportunity to claw back some of its losses, especially if tomorrow’s July IFO business sentiment survey demonstrates improved confidence in Germany.

As it stands, the business climate index is believed to have eased from 115.1 to 114.9, the expectations index is expected to slip from 106.8 to 106.5 and the current assessment measure is forecast to slip from 124.1 to 123.8.

Current Interbank EUR GBP Exchange Rates

At the time of writing, the Euro to Pound Sterling (EUR GBP) exchange rate was trading at 0.8935 and the Pound Sterling to Euro (GBP EUR) exchange rate was trading at 1.1191.