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Euro to Pound Sterling (EUR/GBP) Exchange Rate Weaker on Stronger-than-Forecast UK Data, Eurozone Retail Sales In Focus

The Euro to Pound Sterling (EUR/GBP) exchange rate weakened on Tuesday following the release of economic data, which showed  that activity in the UK’s dominant service sector surged to a 7-month high in March.

The Euro to Pound Sterling (EUR/GBP) exchange rate weakened to a session low of 0.7282

According to the market research group Markit, the seasonally adjusted Markit/CIPS Services Purchasing Managers Index (PMI) jumped to a reading of 58.9 in March, a strong rise from the 56.7 figure recorded in February. Economists had been forecasting for a figure of 57.0.

In a PMI, any figure above 50 indicates expansion whilst a number below 50 indicates contraction.

‘The UK economy moved up a gear in March. Faster growth of new business and improved expectations of prospects for the year ahead also bode well for the upturn to retain strong momentum as we move through the spring,’ said Markit’s chief economist Chris Williamson.

Also supporting the Pound was a separate report released by the Confederation of British Industry (CBI). The group revised up its expectations for UK economic growth in the three months to March and now expects to see that the economy expanded by 0.7% rather than the 0.6% seen in the previous quarter. The PMI data supports their view.

‘The outlook for 2015 looks encouraging. Our surveys show it has been a solid start to the year with the prospect of stronger growth to come. The benefits of lower oil prices should be increasingly felt; with cheaper petrol boosting households’ incomes and spending power, and cutting costs for many businesses,’ said Katja Hall, the CBI’s deputy governor.

Eurozone PMI’s Miss Forecasts

The Euro meanwhile softened as Eurozone PMI reports missed economist forecasts. Service PMI reports from France, Germany and the wider Eurozone all came in below expectations.

The French services PMI came in at 52.4, below the 52.8 expected. The German services PMI came in at 55.4, below the 55.5 forecast. The wider Eurozone services PMI came in at 54.2, missing the 54.3 figure expected.

Despite the numbers missing expectations they were still strong and suggest that the Eurozone is continuing to see improvement.

‘Whether the Eurozone economy has achieved escape velocity to enjoy a return to a strong and sustainable recovery remains uncertain, but the region is certainly seeing its best growth momentum since 2011. The PMI’s are indicating somewhat sluggish GDP growth of 0.3% for the first quarter. However, the important message from the survey data is that the pace of expansion looks set to gather pace in coming months,’ said Mr Williamson.

The Euro could regain some ground on Wednesday if factory orders data out of Germany comes in strongly. Also of interest will be Eurozone retail sales data.