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Pound Euro (GBP/EUR) Exchange Rate Falls as UK Manufacturing Supply Chains at ?Breaking Point?

February 1, 2019 - Written by John Cameron

Pound Euro (GBP/EUR) Exchange Rate Drops as Fears of UK Manufacturing Recession Rise

The Pound Euro (GBP/EUR) exchange rate is down today and is currently trading around €1.1406 on the inter-bank market.

Sterling (GBP) struggled against the Euro (EUR) after the publication of the UK Markit manufacturing PMI for January slipped to a worse-than-expected 52.8 – its worst decrease since 2016.

Fears of the UK manufacturing industry slipping into a recession further increased with Duncan Brock, the Group Director at the Chartered Institute of Procurement and Supply, commenting:

‘Supply chains were closer to breaking point with stretched capacity and delivery times lengthening again for the 33rd month. This begs the question of how much longer suppliers can deliver and businesses can retain stocks for every eventuality.’

EUR/GBP Exchange Rate Rises despite Shaky Eurozone Economy

The Euro managed to gain on the Pound, however, after the publication of the Eurozone’s Markit manufacturing PMI for January remained static at 50.5.

Chris Williamson, Chief Business Economist at HIS Markit, commented:
‘The January PMI adds to the likelihood that the manufacturing sector is in recession and will act as a drag on the economy in the first quarter.’

‘Some temporary factors remain evident, including an auto sector that is struggling to regain momentum after new emissions regulation and some signs of ‘yellow vest’ disturbances dampening demand in France.’

German Markit manufacturing PMI figures for January, however, fell below expectation to 49.7, bringing it further into contraction.

Meanwhile, Eurozone consumer confidence figures fell below expectation in January by 1.4%.

EUR is coming under increasing pressure after yesterday’s shock news that Italy had slumped into a recession after the publication of its GDP figures revealed a slip of -0.2%.

GBP/EUR Exchange Rate Slips as Tensions between UK and EU Flare Up

The Pound is coming under increasing pressure as Prime Minister Theresa May prepares to face the EU over the Irish backstop issue, despite the EU insisting that it is not prepared to renegotiate it.

As no-deal fears continue to haunt UK markets Sterling has found little traction against the Euro, particularly as political debates are heating up between the UK and the EU.

This has erupted over Gibraltar, which was controversially called a ‘colony of the British Crown’ at the request of Spain in an important EU document.

A UK government spokesperson hit back, saying:
‘Gibraltar is not a colony and it is completely inappropriate to describe in this way.’

As the EU and the UK lock horns over the newly amended UK Brexit deal, political tensions are causing some concern – with the UK looking increasingly like it will face a chaotic exit – further dampening confidence in Sterling.

GBP/EUR Forecast: Pound Likely to Plummet if EU Rejects Irish Backstop Amendment

Looking to next week, GBP investors will be paying particular note of the UK construction PMI figures for January, which are, however, expected to decrease.

EUR investors, meanwhile, will be looking ahead to the Eurozone’s Markit services PMI figures on January which are expected to remain static.

These will be followed by the publication of the UK services PMI figures, which are expected to decrease, potentially seeing Sterling fall against the Euro as economic concerns rise.

GBP traders will be looking further ahead to Thursday when the Bank of England is due to release its interest rate decision, which is predicted to remain static at 0.75%.

The GBP/EUR exchange rate will remain increasingly sensitive to political developments with regards to Brexit; if the EU is unwilling to concede on issues surrounding the Irish backstop, Sterling is likely to plummet next week.

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