Unexpected UK Construction Sector Contraction Triggers GBP/EUR Exchange Rate Slump
The Pound to Euro exchange rate has seen a minor decline today, following the news that the national construction PMI has contracted in March.
This was a worse result than expected, with the drop from 51.4 points to 47 exceeding the worst estimates for a 50.9 reading.
Among those responding to the data was Blane Perrotton of Naismiths, who observed that;
‘On this evidence the construction industry isn’t just slowing, it’s seizing. This is the sharpest fall in activity since the Brexit referendum.
But March’s poor performance is likely to be viewed as a frustration rather than a fundamental weakness.
Order books remain strong outside London, suggesting that there is sufficient momentum to ensure March’s miss is a blip rather than a longer-term slide’.
Analysis of UK Construction Sector Suggests Possible GBP-Boosting Recovery In Future
Economists were quick to delve into the UK construction PMI data; among them was Tim Moore of IHS Markit (the company that compiled the PMI data).
Mr Moore suggested that recent snow storms could behind the slump in activity;
‘The construction sector continued to experience subdued business conditions during March, but snow-related disruption was a key factor behind the marked decline in activity on site reported by survey respondents’.
Mr Moore also echoed Mr Perrotton by hinting at a possible construction sector recovery in the coming months, by saying;
‘A solid rise in employment numbers and the rebound in business expectations to a nine-month high provide an indication that construction activity will strengthen over the near-term.
However, survey respondents noted that underlying demand remains constrained by heightened economic uncertainty and risk aversion among clients’.
Euro to Pound Exchange Rate Firms as Jobless Rate Drops and Inflation Rises
A pair of supportive, high-impact data releases have supported the Euro today, enabling a steady advance against the more unstable Pound.
The Eurozone unemployment rate has fallen from 8.6% to 8.5% in February, while annual inflation is estimated to have risen from 1.1% to 1.4% in March.
This latter prediction is particularly notable as it suggests that inflation may start to approach the European Central Bank’s (ECB) 2% target range in the future.
Pound to Euro Exchange Rate Forecast: Will GBP/EUR Fall Further on UK Services Slowdown?
The remainder of the week may be similarly negative for Pound traders, given the latest forecasts for Thursday’s services sector PMI reading.
The measure is predicted to show a slowdown from 54.5 points to 54 in March, which might mean that the Pound falls sharply against the Euro.
A slowdown in the services sector, whether by as much or more than expected, would be a major cause of concern for traders looking at future UK economic stability.
That said, Eurozone data out on Thursday has also been forecast negatively, so the GBP/EUR exchange rate could ultimately remain tight on the day.
Upcoming services and retail sales figures for the Eurozone are tipped to show slowing activity in both fields, which may lower confidence among Euro traders.