March 1, 2018 - Written by John Cameron
STORY LINK Euro to Pound Exchange Rate Rises on Signs of Eurozone Manufacturing Sector Strength
During daily trading on Wednesday, the Euro progressively gained in value against the Pound.
The EUR/GBP exchange rate opened in the region of 0.8796 in the morning and later closed higher around 0.8865 in the evening.
This relatively small advance was enabled by UK economic news being worse than that out of the Eurozone; both areas released data that was less than ideal during the day.
The Eurozone’s disappointing announcements covered GfK German consumer confidence and a Eurozone-wide core inflation rate estimate.
Levels of optimism about the economy in German fell, while the preliminary figure for core annual inflation showed a downgrade from 1.3% to 1.2%.
In an effort to explain this dip in German confidence, GfK researcher Rolf Buerkl said;
‘The political turbulence surrounding the formation of a stable, viable government in Berlin may have unsettled consumers’.
The inflation estimate was the more negative piece of data, as if accurate it would mean that the European Central Bank (ECB) is now less likely to consider tightening monetary policy.
The ECB’s inflation target is in the realms of 2%, so there was little for Euro traders to cheer about when this news was released.
One saving grace was the German unemployment rate for February, which showed a -22k reduction in unemployed persons.
Although the overall unemployment rate remained unchanged at 5.4%, the nominal jobless rate fell from 5.8% to 5.7%.
Gfk’s consumer confidence reading for the UK in February was also negative yesterday and with no major data supporting the Pound, it accordingly declined in the GBP/EUR pairing.
Considering the causes of this dip in consumer optimism, GfK Head of Experience Innovation UK Joe Staton said;
’Ongoing concerns about sluggish household income, rising prices paid by consumers in the shops, and the prospect of inflation-busting council tax and interest rate hikes has dented confidence after last month’s surprising rally.
Despite positive news about upgraded growth forecasts, and the promise of higher wage increases this year, confidence will remain subdued until we feel the positive impact on our purses.
Consumers have good reason to feel jittery and depressed’.
Eurozone Manufacturing Resilience Keeps Euro to Pound Exchange Rate Stable
Although Eurozone manufacturing activity has been reported down today, the Euro to Pound exchange rate has still risen thanks to closer analysis of the figures.
Markit Chief Business Economist Chris Williamson said of the results that;
‘The survey data indicates that factories are still enjoying their best growth spell for 18 years. The average PMI for the first quarter so far is the second-highest since the spring of 2000, falling just short of the near-record peak seen in the fourth quarter of last year.
The broad-based nature of the upturn is especially welcome, with all surveyed countries reporting solid rates of expansion’.
Pound to Euro (GBP/EUR) Exchange Rate Drops along with Manufacturing Activity
While falling manufacturing stats have failed to deplete Euro demand today, the same cannot be said of the Pound.
The GBP/EUR exchange rate has dropped after it was reported that UK manufacturing activity slowed to an 8-month low in February.
Although the reading only fell by -0.1 points, this still pushed reported manufacturing levels to a historic low and reduced the value of Pound Sterling.
Euro to Pound Exchange Rate Forecast: Losses Possible on Eurozone PPI Stats
Looking ahead, the Euro could lose ground against the Pound on 2nd March when Eurozone producer price index (PPI) figures will be released.
These are measures of changes in costs in the single currency bloc – if annual prices decline as predicted then the Euro could drop against the Pound.
Added to the estimate for lower Eurozone inflation, falling PPI readings will firm opinions that Eurozone inflation will remain low in the months ahead.
Returning to PMI data, the UK construction PMI will be out on Friday morning and is forecast to show a slight increase in February.
Given the disappointment of the manufacturing reading, such a result for construction could raise GBP trader confidence and push the Pound to Euro exchange rate higher.
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TAGS: Euro Pound Forecasts