- Pound Euro Exchange Rate Near 1.14 – Pair fluctuates in tight range near week’s opening levels
- UK Manufacturing PMI Disappoints – Eurozone manufacturing PMI rises
- GBP Update UK Services PMI Disappoint – But still sees decent growth
- Forecast: UK Trade Stats Due Friday – BoE and ECB guidance in focus though
Wednesday saw the publication of Britain’s June services PMI from Markit, which fell short of expectations of 53.5 and came in at 53.4.
However, as Euro demand has been limited by a lack of European Central Bank (ECB) hawkishness, the Pound Euro exchange rate’s losses were minimal.
GBP EUR continues to trend just a cent above multi-month-lows, so it will take a lot to push the pair lower.
As the UK services data was only slightly below expectations and still comfortably above the 50 point mark separating growth from contraction.
[Previously updated 16:53 BST 04/07/2017]
Pound Euro Trade Remains Flat on Tuesday
The Pound Euro exchange rate continued to trend largely flatly throughout Tuesday’s European session, close to the key level of 1.14.
While Sterling was weakened by the morning’s construction PMI, the Euro was weighed down by an afternoon speech from ECB chief economist Peter Praet.
Praet appeared optimistic on the Eurozone’s economic outlook but indicated it was too soon to claim the ECB had fulfilled its mission. Praet urged patience and stated it was still too early to withdraw monetary stimulus.
[Previously updated 12:49 BST 04/07/2017]
After trending flathly throughout Monday trade, the narrow Pound Euro trend continued on Tuesday morning.
Investors were disappointed by Markit’s June UK construction PMI, which failed to meet expectations. The print was projected to slip from 56 to 55 but instead dropped to 54.8.
Mirroring the drop in June’s manufacturing PMI, Markit noted that businesses were hesitant to make new investments due to rising Brexit and political uncertainty in Britain.
The afternoon will see a speech from European Central Bank (ECB) official Peter Praet, which could impact Euro exchange rates if he mentions his monetary policy outlook.
[Published 07:00 BST 04/07/2017]
The Pound Euro exchange rate trended relatively flatly during Monday’s European session despite poor UK data and strong Eurozone data, as investors will be waiting for Wednesday’s UK services PMI before making any big shifts on Sterling.
GBP EUR advanced slightly from 1.1360 to around 1.1400 during last week’s trade due to an increase in Bank of England (BoE) tightening bets. The pair trended within a tight range on Monday.
Pound (GBP) Limp as UK Factory Activity Slows
The Pound benefitted heavily last week from Bank of England (BoE) policy tightening speculation, as officials such as Governor Carney and chief economist Haldane indicated it may be necessary to withdraw some of the bank’s stimulus measures in the foreseeable future.
However, both officials noted that their stances relied on the resilience and strength of Britain’s economy, and analysts have warned investors to be cautious as a result.
Monday saw the publication of Markit’s UK manufacturing PMI from June, which came in short of expectations. Analysts had forecast manufacturing to come in at 56.5, but it instead dropped to 54.3. The previous figure was revised lower from 56.7 to 56.3.
According to Duncan Brock from the Chartered Institute of Procurement & Supply, political uncertainties may be partially responsible for the slowing factory activity;
‘Manufacturing activity showed signs of slowing this month, as fears that the sector would feel the impact of both the election and the start of Brexit talks materialised.
While the sector remained in growth, a softening of new orders suggested some hesitancy from the UK to commit to new projects, which will be a worry as the domestic market has been the main driver of growth in the past two months.’
As manufacturing disappointed, investors became more anxious that the other June PMIs may also fall short of expectations this week.
Services make up a notable portion of Britain’s Gross Domestic Product (GDP) growth. It is affected by the retail sector too, making it a good indication of UK consumer activity.
As UK inflation rises and wage growth slows in recent months, analysts have suggested that the retail and services sectors could be directly impacted and lead to slower growth later in the year.
Euro (EUR) Supported by Strong Manufacturing PMI
On the other hand, the Eurozone’s final June manufacturing PMI from Markit beat projections.
Thanks to stronger than expected factory activity in The Netherlands, Austria and Germany, the Eurozone manufacturing print improved from 57 to 57.4 in June, beating the projected figure of 57.3.
Investors were also encouraged by news that Greece’s manufacturing PMI had recorded a 50.5 growth in June, the first growth for the print this year.
However, the day’s Eurozone unemployment rate from May failed to meet expectations of 9.2%, instead remaining at 9.3%. Regardless, this was still the lowest Eurozone unemployment rate since 2009.
The Euro has seen strong performance in recent weeks as ecostats remain relatively solid and the European Central Bank (ECB) has begun to hint that withdrawal from the bank’s stimulus policies could be discussed in the coming months.
Pound Euro Forecast: Services PMI to be Influential
The biggest ecostat this week for GBP EUR traders is likely to be Britain’s June services PMI from Markit, which will be published on Wednesday alongside the composite PMI.
The health of Britain’s services sector will indicate to markets how consumers have been coping with rising inflation and slowing wage growth.
If services beat expectations, the UK economy will be perceived as resilient and Bank of England (BoE) tightening bets will improve. This will lead to stronger Pound demand.
On the other hand, weaker services would increase concerns that Britain’s economy could slow in the second half of 2017. This would lead to a drop in BoE tightening bets and market anxiety about the effects of the Brexit process would worsen.
Tuesday is unlikely to see any major Pound movement, as Markit’s construction PMI is not typically influential. As a result, the Euro is more likely to take point.
After last week’s unexpectedly hawkish comments from European Central Bank (ECB) President Mario Draghi, investors will be looking for further indications from other ECB officials.
The ECB’s Peter Praet will be holding a speech on Tuesday afternoon. If Praet takes on a more hawkish tone like Draghi has, the Pound Euro exchange rate could weaken.