GBP EUR Exchange Rate Slips Despite Impressive Construction PMI

June 2, 2017 - Written by Ben Hughes

STORY LINK GBP EUR Exchange Rate Slips Despite Impressive Construction PMI

The Pound Euro (GBP EUR) exchange rate remains on the back foot this morning despite a better than expected UK Construction PMI.

According to data published by IHS Markit, activity in the UK’s construction sector surged from 53.1 to 56.0 in May, easily outpacing expectations that it would slip to 52.7 and striking its best levels since December 2015.

Tim Moore, senior economist at IHS Markit, said;

‘May’s survey data reveals that the UK construction sector has started to recover strongly from its slow start to 2017… The forward-looking elements of the latest survey are reassuring for the construction sector, notably the acceleration in new business growth to its strongest so far this year.’

However with the construction sector accounting for a relatively small part of the UK’s economy, especially in comparison with the manufacturing and services sectors, the upbeat data appears to have had little positive impact on Sterling.

Instead GBP investors seem focused on next week’s General Election with recent polls suggesting that the race could be a lot closer than analysts predicted when Theresa May first called the election.

With less than a week to go before the UK votes for its next government, investors have become increasingly spooked by suggestions that the elections could result in a hung parliament and not the landslide victory for the Conservatives that was first forecast.

Markets fear that this could hinder the UK’s Brexit negotiations with the EU, with a smaller or non-existent majority likely to weaken the government’s position.

Meanwhile the Euro was strengthened this morning by a better than expected growth report from Greece, with the latest GDP figures showing that its economy grew 0.4% in the first quarter.

This is a major improvement over the previous quarter when its economy contracted 1.2% and beat estimates that Greece’s economy would have shrank again at the start of 2017.

The news also bodes well for Greece’s debt talks, with stronger economic growth possibly causing the countries creditors to be more confident in discussing possible debt relief.

Looking ahead the main focus for investors next week will of course be the UK General Election on Thursday however the GBP EUR exchange rate may strengthen at the start of next week with the release of the UK’s latest Services PMI, with a robust print likely to bolster investor confidence that British economic growth rebounded in the second quarter.

Meanwhile the direction of the Euro next week is likely to driven by the tone of the European Central Bank’s monetary policy meeting on Thursday.

While economists are pretty certain that the ECB will not signal any change to its ultra-loose monetary policy -especially following the recent drop in Eurozone inflation- the Euro may strengthen if the recent uptick in Eurozone data causes ECB President Mario Draghi to present a more upbeat outlook for the coming months.

At the time of writing the GBP EUR exchange rate was trending around 1.1461 and the EUR GBP exchange rate was trending around 0.8725.

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TAGS: Pound Euro Forecasts