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Euro Pound (EUR/GBP) Exchange Rate Muted Ahead of BoE Meeting

November 5, 2019 - Written by John Cameron

Euro Pound Sterling (EUR/GBP) Exchange Rate Left Flat as Eurozone PPI Falls to Three-Year Low

The Euro Pound Sterling (EUR/GBP) exchange rate was left flat on Tuesday, with the pairing trading at around £0.8617.

Sterling was left under pressure at the start of the week thanks to disappointing PMI data and ahead of the upcoming Bank of England (BoE) monetary policy meeting.

It is expected that the bank’s meeting on Thursday will be a neutral event for Sterling, and commenting on this, BNP Paribas economists wrote in a note:

‘We maintain a structurally bullish stance on the currency, although with uncertainty surrounding the outcome of the general election, we are patient.’

Meanwhile, the single currency was left under pressure as September’s Eurozone Producer Price Index (PPI) edged up by 0.1%.

Eurostat revealed that year-on-year, producer prices slumped by -1.2%, the lowest reading since September 2016.

‘Lifeless’ Service Sector Leaves Sterling (GBP) Under Pressure

The Pound was left flat against the single currency on Tuesday as data revealed the UK service sector was left flat in October.

As new business fell for the second consecutive month, the PMI ticked up to 50 from 49.5, although the figure remained among the lowest in the past ten-and-a-half years which weighed on GBP.

Commenting on this morning’s data, Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply said:

‘Without any real expectation for significant change in October, the sector stuttered and stalled delivering a lifeless set of results as new business from domestic and export markets dried up and orders fell for the second month in a row.

‘In terms of staff hiring, this is one of the worst service sector performances since 2011, as job creation became job cutting for the fifth time this year. Even the impending October deadline was not enough to stem the flow of hopelessness amongst service providers, as optimism remained at low levels.’

Euro (EUR) Left Flat as German Manufacturing Stuck in Recession

On Monday, data revealed that the bloc’s largest economy saw its manufacturing sector remain stuck in recession in October.

The single currency was left muted against the Pound as Markit showed new orders slumped for the 13th consecutive month.

Added to this, jobs in the manufacturing sector were being cut at the fastest pace in close to a decade.

The PMI still remained firmly in contraction territory and despite edging up slightly from 41.7 to 42.1, this was still the second-lowest since June 2009.

It has also been suggested that the prolonged recession could be a threat to the domestic economy as the sector continues to cut jobs.

Commenting on yesterday’s data, Phil Smith, Markit Principal Economist said:

‘The German manufacturing sector remains in recession and continues to pose a threat to the domestic economy through a rising number of factory job losses. Employment across the goods-producing sector is now falling at the fastest rate for the best part of ten years, though it should be said the decline is nothing like that seen during the depths of the global financial crisis, and is so far mainly restricted to contractors.’

Euro Pound Outlook: Will Weak Retail Sales Weigh on EUR?

Looking ahead to Wednesday, the Euro (EUR) could fall against the Pound (GBP) following the release of Germany’s services PMI.

If October’s PMI falls further than forecast following Monday’s disappointing manufacturing PMI, it is likely the single currency will slip against GBP.

Meanwhile, EUR could fall further if the bloc is hit with further disappointing data. If September’s Eurozone retail sales do not rise as high as expected, it could cause the Euro Pound (EUR/GBP) exchange rate to slump.

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