- UK Composite PMI Prints Negatively – Completes set of underwhelming PMI
- ‘Brexit’ Concerns Hits Confidence – British and EU investors more bearish
- Light Eurozone Data Allows Pound Recovery – Euro fails to hold ground
- Update: Pound Hit by Poor PMI – Warnings of economic slowing weigh on GBP
- Forecast: German Factory Orders, UK Trade Deficit Ahead – Next week’s earliest reports
GBP/EUR Plummets on Friday as Risk Traders Favour Euro
Markets continue to react to Britain’s poor PMI this week, with fears of near-stagnant Q2 growth taking hold of Pound investors.
Friday was not positive for the Eurozone either, with the day’s lone economic reports printing below expectations. German Construction PMI slipped from 55.8 to 53.4, while Retail dropped from 54.1 to 51.0. Eurozone Retail PMI, on the other hand, scored a disappointing contraction of 47.9, a worse score than March’s contraction of 49.2.
However, the Euro was allowed to hold the Pound down and prevent it from recovering due to negative US data, leading many risk-off investors away from the safe-haven US Dollar and over to the relatively safe Euro instead.
As a result, the Pound’s Friday high of 1.2706 was lost, and GBP/EUR traded around -0.5% down on Friday in the region of 1.2644.
Pound (GBP) Rally Strengthens Throughout Thursday
Confidence in the Pound increased throughout Thursday as the Euro slipped and GBP/EUR edged closer to the week’s opening levels of 1.2759.
At the time of writing, GBP/EUR was up around 0.7% and trended in the region of 1.2708. The pair may continue to rally if German PMI due on Friday prints below expectations.
The Pound Sterling to Euro (GBP/EUR) exchange rate begun an unexpected recovery attempt since Britain’s final April PMI report released on Thursday morning, with the Euro uninspired on minimal data.
At the time of writing, GBP/EUR was rallying in recovery from its weekly low of 1.2592 on Wednesday. The pairing was up 0.5% and trends in the region of 1.2680.
Pound (GBP) Advances Despite being Throttled by Poor Data
While still down on the week’s opening levels, GBP/EUR has unexpectedly gained strength since Thursday’s bearish PMI datasets were released.
The highly anticipated Services and Composite PMI scores were disappointing, following up from underwhelming Construction data on Wednesday and a shocking Manufacturing contraction on Tuesday.
Services printed at 52.3, down from 53.7 and undermining forecasts of merely slowing to 53.5. The Composite score, on the other hand, dropped from 53.6 to 51.9. Investors had expected a healthier result of 53.2.
Following the release, Markit Chief Economist Chris Williamson expressed concern about Q2’s potential Gross Domestic Product (GDP) in a tweet;
‘UK economy near-stalling as ‘All-sector’ PMI points to 0.1% GDP growth rate at start of Q2’
He further warned that the Bank of England (BoE) may be forced to consider growth stimulus if Britain’s economy slows further.
Despite this, the Pound advanced on Thursday. Some analysts suggest that investors had sold the Pound in anticipation of poor Services figures earlier this week, and began to return to the Pound after Composite was revealed to have not suffered a contraction.
European Central Bank (ECB) Bulletin Leaves Euro (EUR) Flat
The Euro was left limp on Thursday as bustling Pound trade and quiet Eurozone data left the shared currency largely ignored.
The European Central Bank (ECB) released a bulletin on Thursday that indicated recovery was continuing gradually, but contained little that investors did not already know.
‘The economic recovery in the Euro area is continuing, driven by domestic demand, while foreign demand growth remains weak. Domestic demand continues to be supported by monetary policy measures. Their favourable impact on financing conditions, together with improvements in corporate profitability, is benefiting investment … The risks to the Euro area growth outlook remain tilted to the downside.’
As a result of the repeated ECB sentiments, Euro investors were left uninspired.
The Euro may also have been weakened by signs that ‘Brexit’ concerns had had a negative effect on Britain’s economy since March. Eurozone investors are likely to grow more concerned of the referendum’s butterfly effects on Britain’s trade partners as the June vote approaches.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: German PMI Finishes Week on Friday
The GBP/EUR exchange rate’s currently unpredictable movement could see the Pound recovering from its weekly loss before markets close for the week, depending on the results of Friday’s Eurozone data.
German Construction PMI and Retail PMI reports for April are due to be released on Friday morning as the day’s only key datasets. Construction printed at 55.8 in March, while Retail scored 54.1.
As the Pound’s rally continues, investors may also turn their attention to warnings that Britain’s economy is nearing stagnation as a result of Thursday’s poor Composite PMI.
The Pound Sterling to Euro (GBP/EUR) exchange rate currently trends in the region of 1.2680, while the Euro to Pound Sterling (EUR/GBP) exchange rate trends around 0.7885.