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Pound Euro Exchange Rate Dips as UK Factories Face Shortages and Rising Costs

August 2, 2021 - Written by John Cameron

GBP/EUR Exchange Rate Falls as UK Economic Uncertain Weighs on Sterling

The Pound Euro (GBP/EUR) exchange rate dipped today following reports that UK factories are facing shortages and rising costs, despite factory output remaining strong in July. The pairing is currently trading around €1.16.

Today’s UK Markit manufacturing figure for July confirmed forecasts and held at 60.4.

Analysts at IHS Markit, who compile the UK PMI data, commented on the latest manufacturing figure:

‘Scarcities, shortages and price rises remained prominent challenges faced by UK manufacturers during July.

‘Raw material, staff and skill shortages were all major factors stymieing output growth and contributing to a further marked increase in input purchasing.’

Rob Dobson, director at IHS Markit, was also cautious, saying:

‘Amid growing indications that many supply chain disruptions and raw material shortages are unlikely to be fully resolved until 2022, the outlook remains one of constrained growth combined with high inflation for the foreseeable future.’

With daily Covid-19 infections showing signs of falling across the UK, however, Pound investors have reasons to be optimistic about the nation’s economic recovery.

Could another consecutive day of falling coronavirus infections see the GBP/EUR exchange rate head higher later today?

Euro (EUR) Exchange Rate Rises on Strong German Manufacturing Data

The Euro (EUR) rose today following the release of the latest German manufacturing PMI for July. The figure beat forecasts, rising from 65.6 to 65.9.

IHS Markit analysts commented on the data:

‘Widespread shortages of materials and poor transport availability pushed up manufacturing input prices in July at a survey-record rate. Indeed, national level data showed rates of cost inflation accelerating to fresh highs across a slew of countries including Austria, Germany and the Netherlands.’

The outlook for the German economy – the largest economy in the Eurozone – continues to improve, with confidence in the Eurozone’s economy also improving as a result of today’s robust data.

Today also saw the release of the latest German June retail sales figure, which rose from -2.4% to 6.2%.

Analysts at Reuters commented on the figure:

‘On the year, retail sales - a volatile indicator often subject to revisions - jumped 6.2% in real terms following an upwardly revised drop of 1.8% in the previous month.

‘The German economy returned to growth in the second quarter but bounced back less strongly than expected from the impact of supply chain bottlenecks.’

GBP/EUR Exchange Rate Forecast: Eurozone Retail Data in Focus

Euro (EUR) investors will be looking ahead to tomorrow’s release of the latest Eurozone’s retail sales data for June.

Any improvement in the outlook for the Eurozone’s economy would see the EUR/GBP exchange rate edge higher.

Tomorrow will also see the release of the latest Eurozone and German PMI composite data for last month.

Could an improvement in Eurozone growth push-up the EUR/GBP exchange rate?

Pound (GBP) investors will monitor the UK’s coronavirus situation. Any signs of falling daily case numbers would be GBP-positive.

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