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Euro Pound Sterling (EUR/GBP) Exchange Rate Climbs Despite German Manufacturing PMI Dropping to 33-Month Low

EUR/GBP Exchange Rate Edges Higher Despite Better-than-Expected UK Data

The Euro to Pound Sterling (EUR/GBP) exchange rate advanced 0.4% on Wednesday, climbing to a high of £0.9026.

The Pound was struggling against all the majors despite unexpectedly positive UK manufacturing data.

The better-than-expected December Markit manufacturing PMI for the UK saw an increase from the previously revised figure of 53.6 to 54.2 despite a forecast drop.

Although it is noted by HIS Markit director Rob Dobson that:

‘Any positive impact on the PMI is likely to be short-lived, however, as any gains in the near-term are reversed later in 2019 when safety stocks are eroded or become obsolete.’

The Markit manufacturing PMI for the Eurozone for December fell in line with expectations, from the revised figure of 51.8 to 51.4, the figure for Germany also fell as forecast to a 33-month low.

Chief Business Economist at HIS, Chris Williamson noted:

‘A disappointing December rounds off a year in which a manufacturing boom faded away to near-stagnation.’

Despite the strong data from the UK and the decrease in manufacturing for the Eurozone, the EUR/GBP pairing rose over the course of the morning.

EUR/GBP Exchange Rate Recovers Losses Following Eurozone Growth Concerns

Today’s movement has seen the EUR/GBP exchange rate recoup losses incurred at the end of last week following a slew of worse-than-expected data from the Eurozone.

December’s consumer price index for Germany fell from 2.3% to 1.7%, contracting further than expected.

Germany’s harmonized index of consumer prices for December showed lower-than-expected growth of 0.3%, with the year-on-year figure easing from 2.2% to 1.7%.

The Pound, meanwhile, was supported at the close of last week by the release of positive UK mortgage data.  The report showed the first annual rise in 14 months, as British banks approved 39,403 mortgages in November (on a seasonally adjusted basis).

Despite this figure initially appearing positive, Howard Archer, chief economist at EY ITEM Club notes that:

‘The housing market is struggling for momentum in the face of still relatively limited consumer purchasing power, fragile consumer confidence and, possibly, wariness over higher interest rates.”

Outlook: EUR/GBP Exchange Rate to Fall on UK Services PMI?

The UK will see the release of December’s PMI for construction tomorrow, which is predicted to decrease to 52.9 from the previous figure of 53.4. If the forecast is correct, or the figure falls further than expected Sterling could extend losses against the Euro..

However, the more-influential UK services PMI is predicted to increase from 50.4 to 50.7 on Friday. As the UK’s services sector accounts for 70% of total UK growth, such an outcome could help the Pound claw back losses.

Unemployment data is also set to be released for Germany, with the unemployment rate set to remain steady at 5%.