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GBP EUR Exchange Rate Fluctuates after Robust UK Services Data

January 4, 2018 - Written by Ben Hughes

UK Service Sector Growth Fails to Bolster the GBP EUR Exchange Rate

Britain’s service sector picked up pace in December, suggesting that the UK’s economy continues to remain resilient.

According to data from Markit, the UK’s services purchasing managers index (PMI) climbed to 54.2 in December, up from November’s print of 53.8.

This marked the second-highest figure since last April, with companies reporting growth in business activity, but slower growth in new work and employment.

There are, however, signs that uncertainty regarding the UK’s future outside of the EU is limiting client spending.

Chris Williamson from Markit explained:

‘…the survey data reveals an economy that is beset with uncertainty about the outlook, which is in turn dampening business spending and investment. Trends in hiring business investment in fixed assets such as offices are showing signs of deteriorating, as is expenditure on IT, computing and other business services’.

This uncertainty continued to play its part in limiting the upward potential of the Pound.

Euro (EUR) Exchange Rates Soar on Strongest Eurozone Growth Since 2011

Eurozone companies posted their strongest growth since 2011 in December.

The Eurozone’s composite PMI – a measure of activity across the region including manufacturing, construction and services – soared to 58.1 last month, smashing November’s 57.5 and the forecast of 58.

Companies in the bloc reported growing strength in new orders, with manufacturers also pointing to the steepest increase in new business since 2000.

This rounded off a solid year for the Eurozone, with fears that political uncertainty would hinder economic growth effectively confounded.

These figures are also consistent with the forecast that Q4 GDP will accelerate to 0.8%.

As a result the Euro broadly climbed against the majors.

GBP EUR Forecast: Could Poor Eurozone Inflation Send GBP EUR surging?

Whilst the GBP EUR exchange rate remains within a narrow band today, things could quickly change tomorrow on the release of the Eurozone’s consumer price index readings, with the headline figure expected to contract year-on-year in December from 1.5% previous to 1.4%.

The core reading, however, (the measure the European Central Bank (ECB) uses as a gauge) is expected to grow from 0.9% to 1.0%.

Nonetheless, both of these readings are significantly below the ECB’s target levels of inflation – a consistent problem for the ECB.

In this respect, contractions – or indeed less growth than expected – could worsen the already dovish monetary policy outlook for 2018-2019, ultimately pushing GBP EUR back into the Pound’s favour.

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