GBP/EUR Slips Negative as UK PMIs Fall
Both the Services and Composite PMIs for the UK have dropped slightly, with the Services index overshooting the forecast fall to hit 55.5. Meanwhile, Eurozone PMIs have mostly printed positively, although the Services indexes for France and Italy and the French Composite all scuppered predictions and fell.
Next Retail Sales Suggest Poor Christmas Performance for UK Retail
Next, the first major high street retailer in Europe to release its Christmas sales figures, has traders fearing the worst after recording an increase in full price sales of just 0.4% between the end of October and the end of December. The figure represents a major slowdown in growth, as sales grew 6% in the previous quarter. The report casts an ominous shadow over the performance of the UK retail sector during what should have been a highly lucrative period.
It is not the only retailer who could reveal a disappointing December. Some analysts predict that Marks and Spencer will post a decline in sales when it releases figures on Thursday, while Deutsche Bank have cut their target price for Tesco shares from 210p to 200p in anticipation of worse-than-expected data.
Eurozone inflation has remained level, rather than increasing as forecast, pushing the GBP/EUR exchange rate up. Pound Sterling has also been buoyed by a better-than-expected performance from the UK construction sector.
Surprise Construction PMI Performance Advances GBP/EUR Exchange Rate
After hitting a seven-month low of 55.3 in November, the UK construction sector rebounded in December. The Markit/CIPS Construction PMI increased past the anticipated 56 level to hit 57.8 – a welcome result after the Manufacturing PMI yesterday unexpectedly fell. Purchasing activity increased at the second fastest monthly level seen in 2015, while commercial construction saw the fastest growth in October 2014. Housing project activity posted a robust level of growth after experiencing a 29-month low in November.
Over half of the companies surveyed anticipate that business will increase in 2016 which, although the lowest level of optimism since February, is still markedly above the average post-crisis sentiment. Only 7% of those surveyed predicted a reduction in business.
According to David Noble, CEO of the Chartered Institute of Procurement & Supply, ‘This was a welcome surprise to the end of the year. The perfect conditions of lower commodity prices, helping bring cost inflation close to April’s six-year low, and a supportive UK economy have given the sector a solid foundation to build on with continued positive sentiment for the year ahead.’
The GBP/EUR exchange rate is currently trending around 1.3621.
EUR/GBP Exchange Rate Forecast: Stagnant Eurozone CPI Causes Euro-Slide
Eurozone inflation figures have failed to rise as forecast, realising investor fears after yesterday’s surprise decline in the German Consumer Price Index. The core Eurozone CPI remained at 0.9% year-on-year (YoY), failing to meet even the minimal forecast rise of 0.1%, while the CPI Estimate stayed level at 0.2% YoY, defying predictions of a rise to 0.4%. The figures follow yesterday’s German releases, which revealed that monthly CPI held flat at 0.0%, resulting in a drop in the CPI from 0.4% to 0.3%, despite a predicted rise to 0.6%.
Euro losses may be softened by the news that German Unemployment fell, with 14,000 fewer people out of work in December. Despite this the Euro is in negative territory, sliding -0.2% against Pound Sterling, -0.3% against the Australian Dollar (AUD), -0.5% against the Indian Rupee (INR) and the US Dollar (USD) and -0.8% against the Japanese Yen (JPY).
A breakdown of figures from Eurostat shows that price growth for food, alcohol and tobacco has dropped from 1.5% to 1.2% year-on-year (YoY) since November, while energy prices dropped at an annual rate of 5.9% as opposed to the previous 7.3% rate. The poor performance of Eurozone inflation has many questioning whether the European Central Bank’s (ECB) current economic stimulus package is having much of an affect.
The EUR/GBP exchange rate is currently trending between 0.7330 and 0.7364.
GBP/EUR Exchange Rate Forecast: Markit PMIs in Focus Tomorrow
Survey company Markit will release Services and Composite PMIs for the UK and Eurozone countries tomorrow. The PMIs for Germany, France and Italy are all expected to remain level or show a minor increase, while the UK Services PMI is expected to fall -0.3 points. While a release of low import, the UK Halifax House Price figures could further stoke fears of a housing market bubble if it shows an increase in prices.
The GBP/EUR exchange rate is currently trending between 1.3569 and 1.3637.