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Pound to Euro (GBP/EUR) Exchange Rate Dips as UK Construction PMI Plummets

May 6, 2020 - Written by John Cameron

GBP/EUR Exchange Rate Falls as Covid-19 Ravishes British Construction

The Pound to Euro (GBP/EUR) exchange rate dipped today, with the pairing currently trading around €1.114.

Sterling suffered following today’s release of April’s UK Construction PMI, which plummeted to a worse-than-expected 8.2 from March’s 39.3. As a result, Pound investors have becoming increasingly jittery over Britain’s struggling economy in the face of the coronavirus pandemic.

Duncan Brock, the Group Director at the Chartered Institute of Procurement and Supply, was downbeat in his analysis, commenting:

‘April’s figures delivered more worrying news for fragile construction businesses as the effects of the coronavirus continued to ripple across supply chains, devastating all productivity in its wake. Though a fall in output was not a complete surprise, the scale and suddenness of the drop has knocked the wind out of building work in the UK.’

‘More vulnerable than other sectors that make up the UK economy, construction was unable to continue in any significant capacity, as companies grappled with furloughed staff and building sites under complete shutdown.’

Meanwhile, Prime Minister Boris Johnson has hinted that the UK’s nationwide lockdown would be eased on Monday. Johnson said that Sunday would see a statement on the ‘un-lockdown’, with a view to making changes the following day.

Euro (EUR) Rises as Germany Takes Steps to Reopen its Economy

The Euro (EUR) rose against the weaker Pound (GBP) today as large Eurozone economies like France and Germany are gradually reopening their economies following the peak of the coronavirus.

The Agence France-Presse (AFP) said in its report:

‘Even after initial steps to open up were introduced from April 20 [in Germany], the number of new infections remained low.’

However, today saw the release of March’s German Factory Orders report, which plummeted to a worse-than-expected -15.6% from February’s -1.2%.

Today also saw the publication of the finale Eurozone PMI Composite figure for April, which came in at a dismal 13.6 as the coronavirus continues to ravage the bloc’s economy.

Chris Williamson, the Chief Business Economist at IHS Markit, commented:

‘With a large part of the region’s economy shut down while COVID-19 infections spiked higher, the economic data for April were inevitably going to be bad, but the scale of the decline is still shocking. The survey data are indicative of GDP falling at a quarterly rate of around 7.5%, far surpassing the worst decline seen in the global financial crisis. Jobs are also being lost at a rate never previously seen.’

GBP/EUR Forecast: Could Sterling Rise on Hints of Lockdown Easing Plans?

Pound (GBP) investors will be awaiting the interest rate decision from the Bank of England (BoE) tomorrow. However, the bank is expected to hold its interest rates at 0.1%.

Tomorrow will also see Andrew Bailey, the BoE’s Governor, deliver a statement. If he is notably downbeat about the British economy going forward, then we could see the Pound continue to struggle against the Euro.

Meanwhile, Euro (EUR) investors will be awaiting the European Central Bank’s President, Christine Lagarde, who will give a speech tomorrow. Any indications that the Eurozone’s economic situation is faltering could weaken the single currency.

The GBP/EUR exchange rate will continue to be dictated by coronavirus developments this week. However, any further notions of what the UK’s lockdown plan might be could boost Sterling on rising hopes for the economy going forward.

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