Euro Pound (EUR/GBP) Exchange Rate Holds Steady, Eurozone Manufacturing Contracts and UK Brexit Optimism Fades

February 21, 2019 - Written by John Cameron

STORY LINK Euro Pound (EUR/GBP) Exchange Rate Holds Steady, Eurozone Manufacturing Contracts and UK Brexit Optimism Fades

EUR/GBP Exchange Rate Rangebound as German Manufacturing Output Falls to Lowest in 6 Years

The Euro Pound (EUR/GBP) is currently trading around £0.8704 following the Eurozone’s manufacturing PMI figures for February.

The report revealed that Eurozone manufacturing output slid into contraction territory today. While this result adds fuel to concerns that the Eurozone economy is slowing, the impact on the Euro was limited.

German Markit manufacturing PMI figures for February also slid further into contraction at 47.6 – the lowest level in over 6 years. Euro investors were also unimpressed by the flash Eurozone PMI which climbed at its weakest rate since 2014.

Chris Williamson, Chief Business Economist at IHS, attributed these weak figures to a number of factors, commenting:

‘[These were linked to a] combination of intensifying headwinds and concerns, including global trade protectionism worries, Brexit, the downturn of the auto sector, increased political uncertainty and anxieties regarding the broader economic outlook.’

But the Pound was unable to take advantage of the poor data to climb against the Euro today following comments from the President of the European Commission, Jean-Claude Juncker.

Junker expressed doubts over the possibility of a Brexit deal being reached between the EU and the UK.

Criticising the increasing factions within the Commons, Juncker said:

‘My efforts are oriented in a way that the worst can be avoided. But I am not very optimistic when it comes to this issue… In the British parliament every time they are voting, there is a majority against something, there is no majority in favor of something.’

These fears were further compounded today as 2 senior Conservative MPs have since threatened to resign if May refuses to remove a no-deal Brexit from the table. The former attorney general, Dominic Grieve, also expressed his wavering support for the Government.

Sterling also failed to gain on the Euro despite UK public finances for February hitting a record monthly surplus on strong income tax receipts.

Pound Euro (GBP/EUR) Exchange Rate Steadies on Fears of No-Deal Brexit

Today also saw Phillip Hammond, the Chancellor of the Exchequer, warning of the harm of a possible no-deal Brexit, while also refusing to comment on whether he would resign over such a scenario, saying:

‘As people start to look at and contemplate the possibility of a no-deal exit, and the damage that would do to the U.K.'s economy and its standing in the world, they become more and more prepared to look at how we build that compromise which takes us forward with a deal.’

Hammond further commented that there was no guarantee that the EU would approve of an extension of Article 50, which has left many Sterling traders feeling jittery.

EUR/GBP Forecast: Euro Could Fall on Dovish Draghi Comments

The EUR/GBP exchange rate is likely to remain sensitive to political developments surrounding Brexit for the rest of this week, with any signs of a possible resolution between the EU and the UK likely to prove positive for the Pound.

The Euro could benefit if German GDP figures for the fourth-quarter show any signs of improving tomorrow.

However, with the Eurozone’s economy struggling many EUR traders will be bracing for tomorrow’s speech by the President of the European Central Bank Mario Draghi, with any dovish comments likely weakening the EUR/GBP exchange rate.

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