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Pound Euro (GBP/EUR) Exchange Rate Falls as Eurozone Manufacturing Hits Record High

UK Manufacturing Cools, Pound Euro (GBP/EUR) Exchange Rate Stumbles

The Pound Euro (GBP EUR) exchange rate tumbled out of the gate in 2018 as markets responded to a slightly below forecast UK manufacturing print and a record high score for the Eurozone’s own manufacturing PMI.

The UK kicked off 2018 with a somewhat sparse data calendar, through Tuesday did feature the UK’s December manufacturing purchasing managers index (PMI).

The survey revealed that manufacturing in the UK decelerated from its recent four-year peak, dropping to 56.3 from 58.2 and missing the forecast of a contraction to 57.9.

This result is, nonetheless, indicative of strong growth momentum, with any survey reading above 50 signifying expansion.

Sreekala Kochuvodindan from Barclays Capital stated:

‘Despite edging lower from November’s high, manufacturing PMIs remain on a solid footing, supported by the intermediate and investment sectors, while the consumer goods sectors remain in the doldrums’.

Despite remaining on strong form, the survey failed to effectively bolster the Pound Euro exchange rate, however, with the Euro continuing to benefit from the current weakness of the US Dollar (USD) and some upbeat data.

Eurozone Manufacturing Hits Record High, Euro (EUR) Exchange Rates Bolstered

Euro (EUR) exchange rates were supported meanwhile as the currency bloc’s own manufacturing report proved better-than-expected on Tuesday, with the index rising to 60.6, up from the previous period’s 60.1 and matching economist forecasts.

This positive reading predominantly resulted from a rise in new orders, employment and overall output within the sector, news that rocketed the survey its highest level since 1997.

On the Brexit front things remain somewhat quiet, although UK Brexit Secretary David Davis has asserted that the transitionary phase of Brexit talks will face similar ‘public thunder and lightning’ as the first phase, also claiming that he wants the ‘full sweep of economic cooperation’ – including financial services – to be had once the trade phase is finally reached.

Markets hope, however, that this phase will not be as long-lasting as the first, as any delay means delays to eventual trade negotiations.

Pound Euro (GBP EUR) Exchange Rate Forecast: Drop in Eurozone Inflation Expected

Looking ahead, markets are currently anticipating Friday’s release of Eurozone consumer price readings, with the headline year-on-year figure expected to fall from 1.5% to 1.4% in December.

Such an eventuality could have a significant effect on the GBP EUR exchange rate, with the European Central Bank (ECB) continuing to struggle to push inflation towards target levels.

This could, in turn, foster even more dovish attitudes at the central bank, further limiting the monetary policy outlook for 2018-2019.

For the UK, markets will be focusing on a range of PMI releases, with the Markit construction PMI due on Wednesday and the Markit services and composite PMIs due on Thursday.

Beyond this, Thursday will see the release of net consumer credit readings for November, as well as the UK’s mortgage approvals – all liable to trigger Pound Euro (GBP/EUR) exchange rate movement.