GBP/EUR Exchange Rate Update: Pound to Euro Advance Seen after UK Manufacturing PMI Rises

April 3, 2018 - Written by John Cameron

STORY LINK GBP/EUR Exchange Rate Update: Pound to Euro Advance Seen after UK Manufacturing PMI Rises

Last week, the Pound to Euro (GBP/EUR) exchange rate opened in the region of 1.1447 and late closed down lower around 1.1371.

This overall week-long deterioration was due to disappointing UK GDP growth rate data, which indicated that the country was the only major developed nation to see slowing growth in 2017.

As well as GDP data disappointing, there were also reports of slowing consumer spending as well.

Outlining the reasons for this disappointing result, EY Item Club Chief Economic Advisor Howard Archer said;

‘The fourth-quarter slowdown in consumer spending occurred as purchasing power continued to be squeezed by higher inflation and muted earnings growth.’

Providing a balanced assessment, Rob Kent-Smith of the Office for National Statistics said;

‘Household borrowing increased throughout 2017, while their saving was the lowest on record.

However, the UK’s deficit with the rest of the world shrank, as the UK received increased earnings on foreign investments thanks to a growing world economy’.

On the other side of the currency pairing, the Euro was influenced by news that economic confidence in the Eurozone had fallen during March.

This was a poor start to weekly economic news, but the situation subsequently improved when the German unemployment rate fell and inflation rate estimates rose.

Both of these latter data releases have raised hopes that there could be monetary policy tightening from the European Central Bank (ECB) in the coming months, as a stronger Germany generally equates to a stronger Eurozone.

Improvement to UK Manufacturing PMI Triggers GBP/EUR Exchange Rate Rise

The Pound to Euro exchange rate has risen slightly on 3rd April, following the news that the UK manufacturing PMI for March has risen.

The reading has increased from a previously revised-down 55 points to 55.1; while a fractional improvement this has still been good news on a larger scale.

Economists were broadly optimistic about the situation, with Ruth Gregory of Capital Economics stating;

‘Even if manufacturing growth does slow to around 0.5%, this would still be fairly strong by past standards. And encouragingly, with the new export orders index holding broadly steady in March, it appears as though the boost from the lower (Pound) exchange rate is still providing ample support for manufacturers’.

The main issue with the manufacturing stats has been that new orders growth has been around a 9-month low, potentially reflecting a constricting effect from Brexit-based uncertainties.

Additionally, although a weakened Pound has improved conditions for exporters of UK manufacturing goods, it could also be having a constraining effect on UK consumers who are having to cope with higher prices.

EUR/GBP Exchange Rate Slumps after Eurozone Manufacturing Slowdown

On the other side of the pairing, the Euro to Pound exchange rate has fallen following a set of negative Eurozone manufacturing PMI releases.

The data for March has shown slowing levels of manufacturing activity across the currency bloc, in some cases by more than forecast.

Another factor lowering demand for the Euro today has been the start of rolling strikes across France, affecting areas like rail transport, energy production and waste collection.

The protest action is in response to President Emmanuel Macron’s plans to reform the national jobs infrastructure, which some fear is a covert way of removing power from workers’ unions.

The strikes are due to take place intermittently over three months and are considered by some to be a major step back in the President’s efforts to change French working conditions for the better.

GBP/EUR Exchange Rate Forecast: Are British Pound Losses Incoming on UK Services PMI Slowdown?

Although the recent UK manufacturing PMI reading printed better-than-expected, additional activity measures out on 4th and 5th April could end up dragging the GBP/EUR exchange rate down.

The construction PMI out on Wednesday and Thursday’s services sector reading are both forecast to show slowing sector activity, which could mean that the Pound to Euro exchange rate takes a dive.

Potentially compounding the problems of Pound traders, the Euro may rally on Wednesday if Eurozone inflation and unemployment rate figures match up with forecasts.

Initial inflation rate estimates for March are tipped to show a rise from 1.1% to 1.4%, while the jobless rate is expected to slow from 8.6% to 8.5%.

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TAGS: Pound Euro Forecasts