Eurozone Manufacturing PMI Uptick Fails to Dent Pound Sterling Euro (GBP/EUR) Exchange Rate
Signs of an uptick in Eurozone economic activity failed to prevent the Pound Sterling to Euro (GBP/EUR) exchange rate holding onto a positive footing.
Although August’s set of manufacturing and services PMIs showed an improvement across the board the data’s impact on the Euro (EUR) proved muted.
In spite of the German manufacturing PMI strengthening from 43.2 to 43.6, the sector remained in a state of contraction, reflecting the continued deterioration in global trade relations.
As analysts at IHS Markit, producer of the PMIs, noted:
Eurozone growth remained muted in August amid ongoing manufacturing struggles. Flash PMI registered 51.8 (51.5 – Jul), still one of the weakest seen for 6 years. Exports were down for the 11th straight month and jobs growth was the weakest in over 3 yrs. https://t.co/6lzr6xjG5f pic.twitter.com/rABDQOIy8J
— IHS Markit PMI™ (@IHSMarkitPMI) August 22, 2019
With the Eurozone growth outlook still appearing decidedly muted in the third quarter, the risk of a potential German recession remains, to the detriment of EUR exchange rates.
Pressure on Pound Sterling (GBP) Builds After UK Retail Sales Index Plunge
Support for GBP exchange rates soon came under pressure, however, as August’s CBI reported retail sales index saw an unexpected plunge.
Confidence within the retail sector slumped sharply, with the index sliding from -16 to -49 to hit its lowest level since December 2008.
This significant decline suggests that Brexit-based uncertainty has weighed more heavily on the economy in the last month than previously suspected.
With this sense of political uncertainty and anxiety over the prospect of a no-deal scenario looking set to persist the appeal of Pound Sterling (GBP) naturally declined.
Given signs of weakness in the wider economy, this deterioration in consumer spending could help to nudge the UK economy into a state of recession in the third quarter.
As higher levels of domestic sales had limited the impact of weakening international trade in previous months this weakness put a fresh dampener on the economic outlook.
Dovish ECB Minutes Forecast to Limit Euro (EUR) Exchange Rate Support
The release of the European Central Bank’s (ECB) July meeting minutes could put some additional pressure on EUR exchange rates.
Fresh confirmation that ECB policymakers are shifting towards a more dovish outlook would leave the single currency vulnerable to another wave of selling pressure.
However, as markets have already priced in relatively high odds of a September interest rate cut, as well as a possible return to quantitative easing, the minutes’ impact may prove limited.
As long as other central banks appear on course to maintain an easing bias in the months ahead this could offer the Euro support against its rivals.
Political pressures could see the GBP/EUR exchange rate gaining fresh ground, though, as markets wait to see whether a new Italian coalition government can be formed.
If Italy looks set to face another general election the mood towards the single could sour further.