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Pound Euro (GBP/EUR) Exchange Rate Shakes Off UK Construction Sector Slowdown

March 4, 2019 - Written by Frank Davies

Disappointing UK Construction PMI Fails to Dent Pound Sterling Euro (GBP/EUR) Exchange Rate

A weaker-than-expected UK construction PMI failed to prevent the Pound Sterling to Euro (GBP/EUR) exchange rate returning to a positive footing on Monday.

As the PMI dipped from 50.6 to 49.5 in February this saw the sector fall into a state of contraction, raising fresh worries over the outlook of the UK economy.

Uncertainty over Brexit weighed heavily on the sector last month, with stockpiling and the deferral of business decisions limiting growth.

However, as the construction sector only contributes a small fraction to the UK gross domestic product the impact of this weaker showing was limited.

The relative softness of the Euro helped to keep the GBP/EUR exchange rate on an uptrend at the start of the week.

Euro (EUR) Exchange Rates Under Pressure as Eurozone Investor Confidence Remains Negative

Demand for the Euro generally deteriorated as the Eurozone Sentix investor confidence index remained firmly in negative territory.

Although the index saw an improvement on the month, strengthening from -3.7 to -2.2, this was not enough to shore up the single currency against its rivals.

With the Eurozone economy already showing signs of sluggishness investors remain reluctant to favour the Euro, especially in the face of a wider sense of market risk appetite.

As the appeal of higher-yielding assets improved this left EUR exchange rates exposed to selling pressure, even as January’s Eurozone producer price index figures also showed an uptick.

Weaker UK Services PMI to Drag GBP/EUR Exchange Rate Lower

The GBP/EUR exchange rate looks vulnerable on Tuesday, however, as forecasts point towards a decline in the latest UK services PMI.

As the service sector remains the primary growth engine of the UK economy any loss of momentum here could have a significant impact on the first quarter gross domestic product.

After the PMI slowed to a near-stagnation in January investors are wary of any further slowdown within the sector.

If the PMI falls below the neutral baseline of 50, revealing a contraction in the service sector, this could weigh heavily on GBP exchange rates.

Unless the service sector can demonstrate a greater sense of resilience the Pound looks set to come under increased pressure.

Euro (EUR) Exchange Rates Look for Boost on Eurozone Retail Sales Data

No real change is forecast for the finalised raft of Eurozone services PMIs, meanwhile, limiting the potential for Euro volatility.

However, January’s Eurozone retail sales data could offer EUR exchange rates a solid rallying point in the short term.

If sales can rebound from December’s sharp monthly decline the mood towards the single currency is likely to improve.

As a stronger level of domestic consumption would help to offset the recent decline in global trade this could encourage investors to pile back into the Euro.

Another disappointing showing, on the other hand, would give the GBP/EUR exchange rate an additional boost as investors brace for the next European Central Bank (ECB) policy meeting.
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