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Pound to Euro (GBP/EUR) Exchange Rate Rises as Eurozone Inflation Eases

GBP EUR exchange rate outlook

GBP/EUR Exchange Rate Rises as UK Services PMI Increased Beyond Forecast

The Pound Euro (GBP/EUR) exchange rate is up today and is trading within the region of €1.1119.

The Pound (GBP) gained on the Euro (EUR) today after the release of the UK’s Markit Service PMI figures for December, which showed a better-than-expected figure of 51.2 against last month’s 50.4.

As the services sector contributes over 80% to total UK economic growth, the better-than-forecast result gave the Pound a little lift.

However, these gains were subdued somewhat by underlying concerns.

Chris Williamson, Chief Business Economist at HIS Markit, commented that the UK economy is ‘showing worrying signs of having lost steam amid intensifying Brexit anxiety’, with the ‘final two months of 2018 [showing the worst] business activity since late-2012’. This added to evidence of Q4 weakness.

Today also saw the release of the UK’s Mortgage Approval figures for November, which showed a decrease to 63.728K against last month’s 66.709K, with Brexit uncertainty dampening the housing market.

Jonathan Harris, Director of the mortgage broker Anderson Harris, saw it as a cause for optimism however, commenting that although mortgage approvals were down against the ‘pre-crisis period’ the UK ‘had moved away from boom and bust towards a more settled situation’.

Pound Euro (GBP/EUR) Exchange Rate Increases as Eurozone Inflation Eases

The Pound (GBP) further benefited against the Euro today with the release of disappointing data for the Eurozone.

The region’s services and composite PMIs were negatively revised from initial estimates and the consumer price index fell short of forecasts.

On a year-on-year basis growth in consumer price inflation eased from 2.0% to 1.6%. The forecast was for a reading of 1.8%. Inflation now sits well below the European Central Bank’s (ECB) 2% target.

However, in more positive news, Germany’s unemployment figures for December fell to their lowest monthly figures since 1991, with the Federal Employment Agency (BA) announcing that 2.21 people were out of work.

Pound sentiment was somewhat dampened, however, on today’s news that a YouGov poll by the Economic and Social Research Council discovered at 64% of Conservative party members would vote for a Brexit ‘no-deal’.

The Chairman of the BA, Detlef Scheele, commented that the ‘labour market has developed very well, although the economic upward lost . . . some momentum’.

GBP/EUR Exchange Rate May Falter as Brexit Returns to Focus

Looking ahead to Monday next week, the Pound Euro exchange rate may fluctuate as the Eurozone publishes German retail sales and factory orders data.

While retail sales are expected to increase, factory orders are expected to have fallen. Any signs of slowing growth in the Eurozone’s powerhouse economy would be Euro-negative.

However, the GBP/EUR exchange rate is likely to be largely driven by political forces rather than economic ones next week, with UK Prime Minister Theresa May and the House of Commons set to return on Wednesday 9 January to continue Brexit discussions.