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Euro to Pound Exchange Rate Could Fall if UK Services Data Impresses Tomorrow

Euro to Pound Exchange Rate Fails to Hold Gains as UK Construction PMI Beats Forecasts

Due to mixed demand for both the Euro (EUR) and Pound (GBP) this week so far, the Euro to Pound Sterling (EUR/GBP) exchange rate has trended within a tight region. Tuesday morning’s data boosted Sterling but had little impact on the EUR/GBP outlook overall.

Following last week’s climb from 0.8788 to 0.8852 on broad Pound weakness, the EUR/GBP exchange rate has seen tighter movement this week. The pair has been fluctuating between lows of 0.8833 and highs of 0.8864.

At the time of writing on Tuesday, EUR/GBP trended below the week’s opening levels once again, as demand for the Pound improved following the day’s most notable datasets.

Eurozone retail sales results disappointed investors and weighed on the Euro, while the Pound was supported by Markit’s better-than-expected June construction PMI.

Euro (EUR) Exchange Rate Support Weakens as Eurozone Retail Sales Disappoint

Monday saw the Euro weakened by German political jitters while Tuesday saw the shared currency weighed by disappointing Eurozone data.

The Eurozone’s May retail sales results were published during Tuesday’s European session and fell short of forecasts in both major prints, worsening market concerns about Eurozone household activity.

Eurozone retail sales were expected to have remained at 0.1% month-on-month in May, but the figure instead printed at a stagnant 0.0%.

The yearly result disappointed too, sliding from 1.7% to 1.4% rather than the forecast 1.5%.

It followed Monday’s news that German Interior Minister Horst Seehofer was planning to resign in protest towards an EU migrant deal.

German political jitters faded on Tuesday as Seehofer rowed back his threats after hours of talks with German Chancellor Angela Merkel.

Pound (GBP) Exchange Rates Supported as Manufacturing and Construction Impress

Britain’s manufacturing and construction sectors saw better-than-expected performance in June, bolstering market hopes that Britain’s economy was seeing a better rebound from its weak early-2018 performance than expected.

While not hugely influential UK economic sectors, the construction data did indicated to some analysts that parts of Britain’s economy appeared to be shrugging off economic uncertainties for now.

According to Duncan Brock, Group Director from the Chartered Institute of Procurement & Supply:

‘With the fastest rise in new orders since May 2017, it appears the brakes are off for the construction sector. Despite being hampered by economic uncertainty, firms reported an improved pipeline of work as clients committed to projects and hesitancy was swept away.’

It also made investors more hopeful that Britain’s June services PMI, due on Wednesday, would beat forecasts too.

Still, Sterling’s strength was ultimately limited by the low influence of the report, as well as persistent Brexit jitters and anticipation for upcoming UK services data.

Euro to Pound (EUR/GBP) Forecast: Services PMIs in Focus

Wednesday could be the most influential session this week for Pound investors, as Britain’s June services PMI will be published.

While the Eurozone’s final June services and composite PMI prints from Markit will be published too, Britain’s data will be particularly influential as services make up a considerable chunk of Britain’s economic outlook.

The UK services PMI is forecast to have remained at 54.0 in June, but as both manufacturing and construction prints beat forecasts investors are hoping UK services will impress too.

It will be the best indication thus far of how Britain’s economy performed towards the end of the second quarter. If it beats expectations, EUR/GBP could tumble as Bank of England (BoE) interest rate hike bets rise and Sterling strengthens.

The Eurozone’s PMI results could prove influential too, but German construction and industrial production data due later in the week may also influence the Euro to Pound (EUR/GBP) exchange rate.