Pound Sterling Euro (GBP/EUR) Exchange Rate Rises Ahead of EU Meeting
The Pound Sterling Euro (GBP/EUR) exchange rate rose by around 0.4% this morning. This left the pairing trading at around €1.1447.
The single currency held steady against Sterling earlier today before slumping ahead of the meeting between European Union officials on the bloc’s response to the economic chaos caused by the coronavirus pandemic.
However, an EU official said that it may take until summer, or longer for officials to agree on how exactly to finance aid in order to help economies to recover. This is due to the major disagreements between countries persisting which weighed on EUR.
Markets continue to be wary as it is uncertain how far the bloc’s governments will co-operate in financing a recovery from what will likely be a deep recession.
Euro (EUR) Slumps as PMI ‘Paints a Shocking Picture’ of Pandemic’s Impact
Meanwhile, flash PMI data revealed manufacturing and service sector activity in the bloc’s largest economy suffered from record contraction in April.
The headline flash German composite PMI plummeted from 35 to 17.1 in April, the lowest reading since comparable data was first collected 22 years ago.
Commenting on the disappointing data, Phil Smith, Principal Economist at IHS Markit said:
‘April’s PMI surveys reveal the full effects of the COVID-19 pandemic and subsequent lockdown on Germany’s economy, showing business activity across manufacturing and services falling at a rate unlike anything that has come before. Compared to a low of 36.3 during the financial crisis, the headline PMI’s reading of 17.1 paints a shocking picture of the pandemic’s impact on businesses.
‘The short-term work scheme is having the desired effect of curbing job losses, with employment falling much less than output during April. Still, redundancies and contract cancellations have led to a record drop in workforce numbers as firms look to cut costs and position themselves for a hard slog in the months ahead.’
Sterling (GBP) Rises despite ‘Dire’ Flash PMI Readings
On Thursday, data showed that the UK suffered its fastest decline in business activity on record.
Britain’s flash PMI composite plummeted from March’s 36 to a survey record-low 12.9. However, this did little to stop GBP making slight gains against the Euro this morning.
The survey revealed that around 81% of service providers and 75% of manufacturing companies reported a decline in business this month. This was overwhelmingly attributed to the coronavirus pandemic.
Commenting on the latest flash PMI reading, Markit’s Chief Economist, Chris Williamson said:
‘The UK economy has been hit by the COVID-19 outbreak in April to a degree far surpassing anything seen in the PMI survey’s 22-year history. Business closures and social distancing measures have caused business activity to collapse at a rate vastly exceeding that seen even during the global financial crisis, confirming fears that GDP will slump to a degree previously thought unimaginable in the second quarter due to measures taken to contain the spread of the virus.
‘The dire survey readings will inevitably raise questions about the cost of the lockdown, and how long current containment measures will last. One ray of light came from an improvement in business optimism about the year ahead compared to the all-time low seen in March, as an increased number of companies saw light at the end of the tunnel. Sentiment about the coming year nevertheless remained the second-lowest ever recorded to underscore how few businesses are anticipating a swift recovery.’
Pound Euro Outlook: Will Divisions Between EU Leaders Send EUR Lower?
Looking ahead, the Euro (EUR) could edge lower against the Pound (GBP) as traders focus on today’s European Union meeting.
If divisions between EU officials continue to dominate the meeting, it will leave the single currency under pressure.
Meanwhile, Friday could see the Pound plummet following the release of GfK’s UK consumer confidence.
If confidence tumbles further in April due to the coronavirus pandemic, it will weigh on Sterling and leave the Pound Euro (GBP/EUR) exchange rate flat.