Pound Euro (GBP/EUR) Exchange Rate Slides as UK Services Sector Recovery Disappoints

May 3, 2018 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Slides as UK Services Sector Recovery Disappoints

UK Services Print misses its Mark – Pound (GBP) Exchange Rates Encumbered

The Pound Euro (GBP/EUR) exchange rate traded lower on Thursday, limited by news that the UK’s services sector posted a disappointing performance in April.

IHS Markit’s latest services PMI reading climbed to a score of 52.8, up from the previous period’s 51.7 but below the market forecast of 53.5.

This rather meagre recovery from March was caused by weak upturn in employment and very moderate inflationary pressures, with the combined PMI readings for April now painting a disappointing picture for British business activity in the second quarter.

Chis Williamson, Chief Economist at Markit echoed this disappointment, stating:

‘The services survey adds to signs that the rate of economic growth remained disappointingly subdued at the start of the second quarter. The three PMI surveys collectively showed only a muted rebound in business activity after being disrupted by heavy snowfall in March, failing to regain February’s pace of growth to suggest that the underlying performance of the economy has continued to deteriorate’.

This poor performance could weigh on the Bank of England’s (BoE) rate decision next week, with the Monetary Policy Committee (MPC) liable to delay until data improves (particularly after the poor UK GDP result for Q1).

Eurozone Inflation Eases – Euro (EUR) Exchange Rates Limited

The Euro’s lead against the pound was limited on Thursday by news that inflation in the bloc fell below forecasts.

According to Eurostat’s estimate, year-on-year consumer price inflation in the bloc eased from 1.3% to 1.2% in April, whilst the core result fell from 1.0% to 0.7%.

This is yet another setback for the European Central Bank (ECB) and Euro bulls, as below-target (and falling!) inflation will likely extend their bond-buying scheme beyond September 2018 and make a hawkish policy move even more unlikely until 2019 or even 2020.

It will also come as a surprise to ECB President Mario Draghi, who said in a recent news conference that he expects the inflation rate to ‘hover around 1.5% for the remainder of the year’.

The GBP/EUR exchange rate was unable to capitalise, however, limited by the gloomy outlook for next months’ BoE rate decision.

Pound Euro (GBP/EUR) Exchange Rate Forecast: Eurozone Retail Sales and PMI Composite Results on the Horizon

With very little data on the radar tomorrow for the UK markets will largely focus on the Eurozone’s ongoing run of ecostats, with the Markit composite reading and bloc’s retail sales results liable to cause some volatility.

Analysts currently expect retail sales in the Eurozone to increase from 1.8% to 1.9% in March, but the IHS Markit composite result is forecast to hold at a score of 55.2.

Given the disappointing fall in both the bloc’s GDP and inflation results it is unlikely that these readings will provide the Euro much support, however.

In other news, tomorrow will feature the US labour market readings for April, with the unemployment rate, wage growth and non-farm payroll results liable to limit the Euro if they prove positive.

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TAGS: Pound Euro Forecasts