- European Commission Forecasts Disappoint – Euro up despite cut forecasts
- Manufacturing PMI Weighs on Pound – Manufacturing declines in April
- Update: UK Construction PMI Low – ‘Brexit’ fears likely to have harmed businesses
- Update: UK Composite PMI at 51.9 – Pound recovers regardless
- Forecast: German Construction, Retail PMI – Friday’s most important data
GBP/EUR Recovers Despite Poor UK Services PMI
The Pound to Euro exchange rate headed back towards the week’s opening levels on Thursday, disregarding negative data that many expected would undermine the Pound’s chances of advancing.
Instead, Sterling gained around 0.7% on the Euro after Services PMI printed an unexpected drop to 52.3 and Composite PMI dropped to 51.9.
Despite warnings from Markit that the low Composite PMI score could indicate that the British economy was headed towards stagnation, GBP/EUR gained when investors realised Composite PMI had not scored a contraction as some analysts feared.
The Eurozone’s Thursday was relatively quiet. The European Central Bank (ECB) released their latest economic bulletin, which largely reflected the statements made my policymakers at the central bank’s April rate decision meeting.
Pound to Euro Continues to Slip as ‘Brexit’ Rows Affect UK Economy
Reports have been circulating that the primary reason for Britain’s poor PMI releases this month is indeed widespread business concern that the UK could ‘Brexit’ from the EU in June.
According to the Financial Times, business uncertainty in Spring 2016 was at a shocking high of at least 19 years.
Businesses have been seen as less likely to make economic moves or purchase assets as the possibility that Britain could leave the European Union and be thrown into economic uncertainty looms.
UK Construction PMI reflected this by disappointing when it released during Wednesday’s session. The underwhelming score of 52.0 heightened concerns that Britain’s key April Services and Composite reports (due on Thursday) could also print well below expectations.
The Euro fared little better as the latest key year-on-year retail sales report showed a decrease from 2.7% to 2.1%. However, in the face of more serious UK economic worries in the short-term, the Pound was unable to recover.
The Pound Sterling to Euro (GBP/EUR) exchange rate trailed downward on Tuesday, despite bearish Eurozone news, as the Pound’s rally wore off and was dented by a contraction in the UK’s latest Manufacturing PMI release.
GBP/EUR lost around -70 pips during Tuesday’s trade session, dropping to near a two week low. At the time of writing, the pair trended in the region of 1.2635.
Pound (GBP) Undermined by Poor Manufacturing PMI, Unexpectedly Bullish Euro
While the Pound remains sturdy against a number of its other major rivals, Sterling faltered against the Euro on Monday and Tuesday as the shared currency gained in strength. The Pound was held back by an unexpected contraction in Manufacturing.
The UK’s key Manufacturing PMI report was initially expected to improve from March’s downwardly-revised 50.7 to 51.2 in April, but instead printed at a low 49.2.
While Manufacturing only makes up a small amount of Britain’s growth, the figure was seen to have put greater pressure on the Services sector to perform well in April.
Services PMI is released on Thursday, with investors currently readjusting as they prepare for the upcoming score.
The Pound’s recent gains took a while to erode, however. Business Insider UK reports that, while it may be temporary, the Pound’s bullish behaviour could be due to decreased ‘Brexit’ bets.
‘…Investors spooked by the fear of Brexit start to see the chances of Britain actually leaving the EU getting less and less likely, making the bearish outlook on the pound less prominent.’
Euro (EUR) Sails Ahead on Friday’s GDP despite Dovish European Commission Economic Forecasts
This week’s mixed Eurozone data has, as of yet, failed to cause a considerable dent in Euro sentiment as investors continue to be hopeful after Friday’s bullish Gross Domestic Product (GDP) release – which showed an improvement of 0.6% in Q1 and indicated that growth had returned to pre-crisis levels.
Monday’s Final versions of April’s German and Eurozone Manufacturing PMI printed just below and above expectations at 51.8 and 51.7 respectively.
The primary information for the Eurozone economy this week has been statements from the European Central Bank (ECB) and European Commission, both of which were largely dovish.
ECB President Mario Draghi spoke in Frankfurt on Monday where he defended the central bank’s easing measures from German critics and reminded markets of the necessity of low and negative rates.
Following this, a new release of the European Commission’s economic forecast was released on Tuesday. The report noted that France, Italy and Spain were unlikely to meet EU budget targets over the next two years, according to Reuters.
‘Eurozone growth will be slower than expected, with gross domestic product expanding 1.6 percent this year and 1.8 percent next compared to 1.7 percent in 2015, the Commission said — a limping performance at a time when the European Central Bank’s money printing policies are under fire from Berlin.’
Despite all this, the Euro strengthened after its major rival, the US Dollar, had seen further weakening in demand from investors following decreased Fed rate hike bets. This, coupled with worsening risk-sentiment, has led to the Euro being a more appealing safe-haven currency in comparison to the US Dollar.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: UK and Eurozone PMI Sets Ahead
The UK and the Eurozone will both be releasing their final April Markit PMI reports during the remainder of the week.
Services and Composite figures for the Eurozone are due this morning, followed closely by Britain’s Construction PMI. The Construction data is currently predicted to worsen from 54.2 to 54.0.
UK’s highly anticipated Services and Composite PMI reports are due on Thursday, and investors will wait to see if services can make up for the particularly poor performance from the manufacturing sector in order to keep the composite PMI printing positively.
The pressure for the Service sector to perform well will increase if Construction data prints poorly like Manufacturing did, and the Pound could struggle if the releases are ultimately poor.
On the other hand, the Euro could continue its bullish behaviour while the US Dollar remains relatively unappealing, but investors may favour Sterling instead if Eurozone data proves negative.