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Euro Pound Sterling (EUR/GBP) Exchange Rate Slides despite Worst UK Service Sector Performance Since 2008

Euro Pound (EUR/GBP) Exchange Rate Falls despite Disappointing UK Services PMI

UPDATE: The Euro Pound Sterling (EUR/GBP) exchange rate slumped and the pairing is currently trading at an inter-bank rate of £0.9046.

Wednesday’s UK services PMI slipped from July’s 51.4 to 50.6 in August.

Markit’s survey revealed that confidence levels within the sector had plummeted to its lowest level since July 2016.

While there were slower increases in new work and staffing levels, this could do little to stop Sterling rise against the Euro.

Commenting on this morning’s data, Chris Williamson, Chief Business Economist at IHS Markit said:

‘Business activity in the service sector almost stalled in August as Brexit-related worries escalated, curbing spending by both businesses and consumers. So far this year the services economy has reported its worst performance since 2008, with worrying weakness seen across sectors such as transport, financial services, hotels and restaurants, and business-to-business services.

‘After surveys indicated that both manufacturing and construction remained in deep downturns in August, the lack of any meaningful growth in the service sector raises the likelihood that the UK economy is slipping into recession. The PMI surveys are so far indicating a 0.1% contraction of GDP in the third quarter.’

Euro Pound (EUR/GBP) Exchange Rate Falls as UK MPs Vote to Take Control of Parliament

The Euro Pound Sterling (EUR/GBP) exchange rate slipped and the pairing is currently trading at an inter-bank rate of £0.9039.

Sterling received an upswing of support as a parliamentary vote opened the door to yet another Brexit delay.

In his vote as Prime Minister, Boris Johnson lost to rebel Tories who voted 328 to 301 to take control of the parliamentary agenda.

This allows MPs to bring a bill forward requesting a further Brexit delay.

Speaking in the House of Commons, Johnson argued the bill would ‘hand control’ of negotiations to the EU.

He also added this would bring ‘more dither, more delay, more confusion’.

Added to this, a vote to hold an early general election is expected to take place today.

Commenting on Tuesday’s events, Director at Sydney FX brokerage Xchainge, Nick Twidale stated:

‘It now opens up the possibility again of, I suppose the extreme would be a no-Brexit, but a softer Brexit.

‘We’d priced in so much of a hard Brexit with Boris Johnson coming in, that I think there’s real opportunity for some Sterling appreciation.’

Euro (EUR) Slides as German Business Confidence Slumped Close to Five Year Low

Wednesday’s German services PMI data revealed that sector growth remained solid.

However, there were signs of underlying weakness which left the Euro under pressure.

August’s PMI edged up from July’s six-month low of 54.5 to 54.8.

While the survey showed that both business activity and employment continued to rise, expectations for future activity slumped close to a five-year low.

Meanwhile, August’s German composite PMI ticked up to 51.7 from 50.9.

This was due to the expanding services sector and a slower decrease in manufacturing production.

Commenting on this morning’s data, Principal Economist at IHS Markit, Phil Smith said:

‘The worry was that the weakness in the manufacturing sector would eventually infect the rest of the economy, and the service sector is certainly showing symptoms of the malaise having spread.

‘Concerns about the health of the economy have steadily built up over the past six months, causing business confidence across the service sector to deteriorate to its lowest in almost five years. Now, almost as many services firms expect activity to contract over the next 12 months as those forecasting growth.’

Euro Pound Outlook: Will a Further Brexit Delay Buoy GBP?

Looking ahead, the Pound (GBP) could continue to rise against the Euro (EUR) following the vote on the Brexit delay bill.

If MPs vote to delay Brexit and block a no-deal, it is likely Sterling will receive an upswing of support.

Meanwhile, on Thursday the single currency could be left under pressure following the release of August’s German construction PMI.

If the construction sector plunges deeper into contraction territory, it is likely the Euro Pound (EUR/GBP) exchange rate will slide further.