GBP/EUR Exchange Rate Update: Pound to Euro Exchange Rate Slides on Manufacturing Sector Slowdown

May 1, 2018 - Written by James Fuller

STORY LINK GBP/EUR Exchange Rate Update: Pound to Euro Exchange Rate Slides on Manufacturing Sector Slowdown

On Monday, the Pound to Euro exchange rate opened in the region of 1.1357 but closed higher around 1.1398.

This advance was primarily caused by the Euro weakening during the day, rather than there being any especially supportive UK economic data.

The only notable Pound-supporting news was a Lloyds Bank survey of UK businesses.

This showed that a slim majority of business owners were more optimistic about UK conditions in April, compared to the start of the year.

The Euro-damaging data releases seen on 30th April included German retail sales figures for March, which fell for the fourth month in a row.

Additional Euro losses were caused by Italian and German inflation rate estimates for April, where the preliminary readings fell for the most part.

Slowing inflation in the Eurozone lowers the chances of the European Central Bank’s (ECB) 2% target being reached, which in turn makes an ECB interest rate hike less likely.

UK Manufacturing Sector Slowdown Triggers -0.4% GBP/EUR Exchange Rate Drop

In a disappointing turn of events, the Pound to Euro exchange rate has dropped sharply on 1st May following news of a UK manufacturing sector slowdown.

The PMI reading for April has declined from 54.9 points to 53.9, falling below the expected 54.8 point reading.

The reaction among traders and economists has largely been negative, with some writing off a Bank of England (BoE) interest rate hike this month.

The data was compiled by IHS Markit, with Director Rob Dobson giving a gloomy forecast;

‘Looking ahead, the trend in manufacturing production is likely to remain subdued.

‘Weak demand meant firms are seeing backlogs of work fall and stocks of unsold goods rise, limiting the need for output to rise in May.

‘Business optimism has also dipped to a five-month low as concerns about Brexit, trade barriers and the overall economic climate remained widespread’.

EUR/GBP Exchange Rate Advances on US Steel Tariff Exemption Extension

On a quiet day for direct Eurozone economic data, the Euro has still advanced against the Pound and other peers like the Polish Zloty and the South African Rand.

This appreciation for the Euro comes after the news that the Eurozone will continue to benefit from a temporary exemption from US metal tariffs.

EU nations had been temporary exempt from the export charges when they were first proposed, as part of a lengthy negotiating period during which groups could secure permanent exemption.

The initial deadline for talks has since expired; while the EU still doesn’t have a permanent deal, it has been granted continued temporary exemption for another 30 days.

This has been positive news on the face of it, as it provides EU negotiators with more time to hopefully secure a longlasting exemption from the punitive costs.

That said, French Foreign Minister Jean-Yves Le Drian and Finance Minister Bruno Le Maire have warned that;

‘France will continue to advocate that the EU has a full exemption permanent and unconditioned.

‘There is no reason that the EU is subject to unilateral increases in tariffs on steel and aluminium.

‘France and the European Union are US allies. They are not the cause of global overcapacity in aluminium and steel and fully respect all the rules of the WTO’.

GBP/EUR Exchange Rate Forecast: Can Pound Recover on UK Construction and Services Sector Growth?

The Pound to Euro exchange rate (GBP/EUR) has had a bad start to weekly trading, but could be on track to recover when UK PMI data is released.

A Sterling advance could be triggered by the UK construction PMI announcement on 2nd May, as well as by the services sector reading on 3rd May.

Expectations are for both measures to show rising activity in April, in contrast to the recent manufacturing sector upset.

The construction sector reading might prompt a mid-week GBP/EUR exchange rate advance, as it is forecast to show a rise from contraction at 47 points to growth at 50.5.

Even if the Pound is weakened by continued construction sector contraction, however, a rising services sector PMI could overshadow this and trigger a rally.

The services sector reading is considered the most important of the three UK PMIs, as it covers a broad range of fields such as tourism, retail sales and financial services.

There could be further support for a GBP/EUR exchange rate rally this week when Eurozone data comes out, as it has largely been predicted to print negatively.

Eurozone GDP estimates for Q1 2018 are predicted to show slowing growth on 2nd May, which could panic Euro traders and weaken the single currency.

Additionally, if preliminary inflation rate figures on 3rd May also show a slowdown then the Euro (EUR) might fall further against the Pound (GBP).

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TAGS: Pound Euro Forecasts