Pound Sterling Euro (GBP/EUR) Exchange Rate Weakens in Spite of Positive UK Services PMI
An uptick in the headline UK services PMI was not enough to disguise signs of weakness in the domestic outlook, leaving the Pound Sterling to Euro (GBP/EUR) exchange rate on a downtrend.
Even as the sector demonstrated solid growth on the month investors were more concerned by the decline in business confidence as uncertainty over Brexit continues to mount.
With the odds of a no-deal Brexit failing to significantly diminish as the UK and EU struggle to find an agreement on key issues the mood towards Pound Sterling (GBP) naturally soured.
As the services PMI followed on from disappointing slowdowns in the manufacturing and construction sectors this also raised concerns over the increasingly unbalanced nature of the UK economy.
With domestic growth almost entirely reliant on the continued health of the service sector confidence in the outlook remains fragile, to the detriment of GBP exchange rates.
Revised Eurozone Services PMIs Fail to Boost Pound Sterling Euro (GBP/EUR) Exchange Rate
Downward revisions to the Eurozone’s latest raft of services PMIs failed to offer any particular boost to the Pound Sterling to Euro (GBP/EUR) exchange rate.
Although the data paints a less-than-encouraging picture of the Eurozone’s economic outlook the Euro (EUR) was able to largely shrug off the disappointing data this morning, benefitting from wider market trends.
However, EUR exchange rates could struggle to hold onto a stronger footing in the coming weeks as confidence in the continued growth of the currency union diminishes.
Commenting on August’s PMIs, Chris Williamson, Chief Business Economist at IHS Markit, noted:
‘The survey data for the third quarter so far suggest the single currency area is on course to at least match the 0.4% expansion of GDP seen in the second quarter, yet the downturn in optimism raises questions over whether this pace of growth can be sustained into the fourth quarter.
‘Business expectations about activity levels in the year ahead dropped to the lowest for almost two years amid growing concerns about the impact of trade wars and heightened political uncertainty.’
Disappointing German factory orders and trade data may prompt the Euro to falter ahead of the weekend, with escalating global trade tensions looking likely to have weighed heavily on the Eurozone’s powerhouse economy.
Extended Term for BoE Governor Carney to Shore up GBP/EUR Exchange Rate
If Bank of England (BoE) Governor Mark Carney extends his term at the central bank, vindicating investor hopes, this could see the Pound Sterling to Euro (GBP/EUR) exchange rate rally sharply.
As Brexit uncertainty increasingly dominates the domestic outlook markets are likely to greet the prospect of greater continuity that Carney remaining as BoE Governor would offer.
However, if talks with the Treasury ultimately fail to yield an extension of Carney’s term the Pound looks vulnerable to fresh losses.
Focus is also set to fall on the latest consumer inflation expectations gauge, with forecasts pointing towards a slight dip in anticipated price pressures.
This could give the BoE less cause for hawkishness moving forward, limiting the potential for a Pound Sterling to Euro (GBP/EUR) exchange rate rebound.