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GBP EUR Exchange Rate Slumps as UK Construction Activity Unexpectedly Shrinks

October 3, 2017 - Written by John Cameron

After recouping some of yesterday’s losses overnight on Monday the Pound Euro (GBP EUR) exchange rate has fallen sharply again this morning following the release of the UK’s latest Construction PMI.

Pound (GBP) Plummets as Construction Sector Activity Contracts



Sterling faced another battering in early trade this morning as investors were dismayed by Britain’s latest construction figures.

According to figures compiled by IHS Markit, the UK’s construction PMI plunged from 51.1 to 48.1 in September, falling well below expectations of a slight dip to 51 and falling to its lowest levels since just after the Brexit referendum.

Most importantly this means that activity in the UK’s building sector actually shrank last month as the index fell below 50, which marks the difference between growth and contraction.

The accompanying report showed that the decline has largely been driven by Brexit uncertainty as both consumers and businesses are increasingly reluctant to make major financial commitments amidst the political and economic uncertainty of Brexit.

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said;

‘Respondents pointed to obstructive economic conditions and the Brexit blight of uncertainty, freezing clients into indecision over new projects. Even housing, the stalwart of the construction sector stuttered with a dwindling performance, but civil engineering was the biggest victim falling to its weakest level for four and a half years.’

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Today’s data follows the apparent slowdown seen in the UK’s latest manufacturing PMI yesterday, with the two lacklustre PMI’s suggesting that the UK economy is likely to have slowed at the end of the third quarter.

Euro’s (EUR) Gain’s tempered by Catalonia Referendum Vote



Meanwhile the Euro advance has been slowed this morning as investors remain dovish towards the single currency in the wake of a historic independence vote in Catalonia in Spain on Sunday.

Despite the referendum being marred by violence as the Spanish government attempted to block what it called an illegal vote, the Catalan President Carles Puigdemont declared that 90% of voters voted in support of independence.

It is not clear how this vote will impact the Catalonia government’s attempts to secede, especially with turn out only being around 42%, but with international opinion turning against Madrid following the heavily handedness of police deployed to block the vote it looks like investors are keen to avoid the single currency for the time being.

Stephen Gallo, European head of FX Strategy at the Bank of Montreal said;

‘The Spanish situation is still too fluid to predict, but like the German result, the PR disaster faced by Madrid and (Prime Minister Mariano) Rajoy's minority government are not reasons to be buying euros here, especially with the leveraged money community already long of euros.’

GBP EUR Forecast: Will the UK’s Services Sector Also Have Slowed in September?



Looking ahead the GBP EUR exchange rate may plummet again on Wednesday if the UK’s all important service sector also showed any sign of slowing in September.

While investors currently predict that the Service PMI will have held at 53.2 last month, the fall in both the manufacturing and construction PMI’s is likely to cause some doubts over whether the service sector will have managed to remain robust.

Also potentially weighing on the Pound this week will be the Conservative party conference as suggestions that Boris Johnson may be seeking to dethrone Theresa May as party leader does little in inspire confidence in the country’s political leadership during critical Brexit talks.

Meanwhile the Euro may be strengthened further by the release of the Eurozone’s latest retail sales figures as analysts forecast that sales will have risen again in August after previously contracting 0.3% in July.

Current Interbank Exchange Rates



At the time of writing the GBP EUR exchange rate was trending around 1.1287 and the EUR GBP exchange rate was trending around 0.8861.

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