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Pound Sterling Euro (GBP/EUR) Exchange Rate Gains Ground on Hopes of UK Growth Rebound

Pound Sterling Euro (GBP/EUR) Exchange Rate Pushes Higher After Better-Than-Expected Manufacturing Data

As the UK manufacturing PMI bettered forecast in May this encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to trend higher.

Rather than showing a modest dip on the month the PMI instead picked up from 53.9 to 54.4, suggesting a greater level of expansion within the manufacturing sector.

This helped to shore up Pound Sterling (GBP) exchange rates ahead of the weekend, boosting confidence in the outlook of the UK economy.

However, the underlying details of the data were not as positive as the headline figure might suggest, limiting the upside potential of the Pound.

As Rob Dobson, Director at IHS Markit, noted:

‘A slowdown in new order inflows meant the expansion in production was achieved only by firms working through their backlogs of work. Weaker than expected sales meanwhile led to the largest rise in unsold stock in the survey’s 26-year history.

‘This suggests that manufacturers have yet to fully adjust their production to the weakening trend in new business growth and there will need to be a rapid improvement in demand if output volumes are to be sustained in the coming months.’

Ousting of Spanish Prime Minister Shores up GBP/EUR Exchange Rate

The ousting of Spanish Prime Minister Mariano Rajoy offered additional support to the Pound Sterling to Euro (GBP/EUR) exchange rate on Friday morning.

Even so, the impact of the successful vote of no confidence proved a little more limited than investors had feared.

While the new prime minister elect represents a move towards the left of the political spectrum markets do not expect to see any particular shift in policy in the near future.

With the Italian political deadlock also resolved as the populist alliance of the Five Star Movement and League cemented a coalition the pressure on Euro (EUR) exchange rates eased.

However, with the Eurozone economy still showing signs of losing its momentum and the imposition of heavy US tariffs on steel and aluminium the appeal of the single currency remained limited ahead of the weekend.

Pound Sterling Euro (GBP/EUR) Exchange Rate to Strengthen on Service Sector Growth

The Pound Sterling to Euro (GBP/EUR) exchange rate may find further gains in the week ahead if the UK construction and services PMIs for May prove similarly encouraging.

Investors anticipate a solid uptick in service sector activity on the month, something which could offer Pound Sterling a strong rallying point.

As long as the services PMI shows improvement this is likely to fuel bets that the economy rebounded in the second quarter after a weaker start to 2018.

This could fuel bets that the Bank of England (BoE) will opt to raise interest rates in August, to the benefit of GBP exchange rates.

However, any signs of weakness here could leave the Pound Sterling to Euro (GBP/EUR) exchange rate exposed to significant downside pressure.