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Pound Euro (GBP/EUR) Exchange Rate Slumps as UK Services PMI Proves Worse Than Forecast

Weaker UK Services PMI Weighs Heavily on Pound Sterling Euro (GBP/EUR) Exchange Rate

A negative revision to October’s UK services PMI helped to drive the Pound Sterling to Euro (GBP/EUR) exchange rate lower.

Investors were caught off guard by the revision to the initial estimate of 52.3, with the fresh reading of 51.4 representing a greater loss of momentum on the month.

This evidence of weakening growth within the UK service sector weighed heavily on Pound Sterling (GBP), given that the sector remains the primary growth engine of the economy.

With the odds of a negative fourth quarter growth rate already rising this disappointing showing put renewed pressure on GBP exchange rates on Wednesday.

Anticipation ahead of the Bank of England’s (BoE) policy announcement also served to weigh on the Pound at this stage, with markets lacking in reasons to favour the softening Pound over its rivals.

Euro Looks for Boost on German Factory Orders Growth

Support for the Euro (EUR) could falter on Thursday morning, though, with the release of September’s German factory orders figure.

After the strong growth of 4.5% seen in August forecasts point towards a slightly smaller degree of growth at 2%.

Even so, as long as factory orders continue to show an uptick at the end of the third quarter this should help to shore up confidence in the health of the Eurozone’s powerhouse economy.

On the other hand, if factory orders fail to grow as forecast the mood towards the Euro could easily sour.

With the latest German and Eurozone construction PMIs looking set to show another monthly contraction underlying support for EUR exchange rates may falter.

The relative strength of the US Dollar (USD) also appears likely to limit the potential for Euro gains in the days ahead, given the uncertainty still surrounding the outcome of the US presidential election.

BoE Comments on Negative Interest Rates May Drag on Pound

Even if the Eurozone data disappoints, though, the GBP/EUR exchange rate looks set to remain on a weaker footing ahead of the BoE meeting.

The nature of the meeting minutes could see the Pound trending lower still across the board, with investors wary of an increased sense of dovishness among policymakers.

Any fresh mention of negative interest rates may put particular pressure on GBP exchange rates.

Signs that the central bank is increasingly open to the possibility of cutting interest rates further would leave the Pound vulnerable to greater selling pressure.

However, if the BoE adopts a less pessimistic outlook on Thursday this could help the GBP/EUR exchange rate to recover some of its lost ground in the short term.