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Muted UK Services PMI Limits Pound Euro Exchange Rate Uptrend

As August’s UK services PMI proved somewhat disappointing this left the Pound Euro exchange rate on a relatively narrow trend.

Confidence in Sterling remained somewhat limited as the PMI eased from 53.8 to 53.2 on the month, indicating that the sector is still coming under pressure as Brexit-based uncertainty persists.

This weaker showing does not bode well for the outlook of the UK economy in the third quarter, as Chris Williamson, Chief Business Economist at IHS Markit noted:

‘A summer slowdown was evident in the economy as the August PMI surveys showed slower rates of expansion in services and construction offsetting an improved performance in the manufacturing sector. The resulting overall expansion was the weakest for six months.

‘Although the latest two months’ data put the economy on course for another 0.3% expansion in the third quarter, momentum is being gradually lost.

‘Robust manufacturing growth means the economy may be rebalancing towards goods production, aided by the weaker Pound, but the slowdowns in services and construction send warning signals about the health of the economy.’

Altogether this is unlikely to encourage the Bank of England (BoE) to adopt a more hawkish outlook in the near future, seeming to reduce the odds of any imminent change in monetary policy.

Even so, if Friday’s NIESR gross domestic product estimate points towards a sustained rebound in growth this could offer the GBP EUR exchange rate a rallying point ahead of the weekend.

On the other hand, any further indications that the UK economy is losing momentum could weigh heavily on the Pound.

Lacklustre Eurozone Data Hampers Euro Demand Ahead of ECB Meeting

With the finalised Eurozone services PMI having dipped to a seven-month low of 54.7 the Euro lacked the support to capitalise on the softer Pound.

Even though Germany continued to demonstrate solid growth in its service sector signs of renewed weakness in Italy, France and Spain worked to offset this.

A contraction in Eurozone retail sales on the month also discouraged investors, adding to concerns that domestic confidence is slipping.

The appeal of the single currency is likely to remain relatively limited in the near term as anticipation builds for the European Central Bank’s (ECB) September policy meeting.

While there are no real expectations for policymakers to make any particular changes at this juncture investors are still keen to gauge the tone of the ECB’s latest commentary.

If President Mario Draghi continues to adopt a more dovish view, particularly with regards to the relative strength of EUR exchange rates, this could encourage the Euro to extend its downtrend further.

However, any indications that the ECB is on course to begin tapering its quantitative easing program before the end of the year are likely to offer the single currency a fresh boost across the board.

Current GBP EUR Interbank Exchange Rates

At the time of writing, the Pound Euro exchange rate was making gains in the region of 1.0884. Meanwhile, the Euro Pound exchange rate trended lower around 0.9185.