GBP EUR Exchange Rate Rises as Manufacturing Data Impresses

January 3, 2017 - Written by John Cameron

STORY LINK GBP EUR Exchange Rate Rises as Manufacturing Data Impresses

The Pound to Euro exchange rate slipped on Wednesday afternoon after spending most of the day edging higher. A weaker US Dollar and solid Eurozone ecostats allowed the Euro to advance.

Various UK and Eurozone ecostats will be published on Thursday, including Britain’s services and composite PMI results from Markit, and Germany’s construction and retail PMI from Markit.

(Previously updated 03/12/2017)

The GBP EUR exchange rate jumped by over half a cent this morning following the release of the latest UK Manufacturing PMI.

Pound Euro (GBP EUR) Bolstered by Jump in UK Manufacturing

The Pound Euro (GBP EUR) exchange rate surged this morning as Markit reported a spike in the UK’s latest manufacturing report, with the PMI rising from 53.6 to 56.1 in December, beating expectations that it would fall to 53.3 and reaching its highest levels since June 2014.

The spike in manufacturing was largely caused by a rise in exports as British goods became more attractive to buyers thanks to the 18% drop in the value of the Pound since the UK’s vote to leave the EU. However there are concerns that the recent uptick will be short lived as costs begin to increase in 2017. As James Knightley, senior economist at ING, explains;

‘Sterling’s fall also means that imported components are more expensive with both costs and output prices rising yet again. This increase in domestic pipeline inflation pressures is being mirrored by higher costs for imported consumer goods and energy.’

Domestic demand is also expected to see a sharp drop later in the year as consumer spending is forecast to shrink dramatically amid rising inflation.

There are also concerns that the PMI survey can quite often be in stark contrast with the official data. As Samuel Tombs, chief UK economist at Pantheon Macroeconomics remarks;

‘The relationship between the PMI and the official data, however, has been particularly loose lately; the PMI has signalled steady growth in manufacturing output since August, but the official data have oscillated around a flat trend.’

Euro (EUR) German Inflation Skyrockets

The Euro started to recover this afternoon as the German Consumer Price Index more than doubled in December.

Inflation rose from 0.8% to 1.7% last month, outpacing expectations that it would rise to 1.4% and reaching a three year high, while also closing in on the European Central Bank’s (ECB) target of 2%.

Investors are hopeful that the surge in inflation will give critics of the ECB’s quantitative easing programme more ammunition when arguing for the tapering of the central banks bond-buying,

GBP EUR Exchange Rate Forecast: Sterling may Advance if UK Construction PMI Impresses

The GBP EUR exchange rate may rise tomorrow if the UK’s latest Construction PMI shows a similar rise to today’s manufacturing data, although analysts currently forecast that it will have dropped slightly from 52.8 to 52.6 in December.

Meanwhile the Eurozone will release its own CPI data on Wednesday, which was previously expected to show that Eurozone inflation held at 0.8% in December, but the jump in German inflation could cause it to be revised higher, likely causing the Euro to advance.

Current Interbank Exchange Rates

At the time of writing the GBP EUR exchange rate was trending around 1.18 and the EUR GBP exchange rate was trending around 0.84.

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TAGS: Daily Currency Updates Euro Forecasts Euro Pound Forecasts