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Pound Euro Exchange Rate News: GBP/EUR Rangebound Following Weaker-Than-Expected UK PMI Data

January 24, 2022 - Written by John Cameron

GBP/EUR Stumbles Amidst Weaker-Than-Expected UK PMI Figures

The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range in the beginning of today’s session in response to lower-than-forecast UK PMI data.

At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.1929, down roughly 0.2% from today’s opening levels.

Pound (GBP) Slips as UK PMI Prints Lower-Than-Predicted

The Pound (GBP) is subdued against the Euro (EUR) at the beginning of today’s session in response to the UK’s service and manufacturing PMI data for January printing below expectations.

The UK’s service PMI printed at 53.3, down from 53.6 and missing the expectations the index would climb to 54.8.

This shows a slowdown in economic growth where it had been predicted to expand, suggesting that the Omicron variant has caused the UK economy to weaken at the beginning of the new year.

The biggest weakness came from consumer-facing industries, including travel and hospitality, and costs increased at the second-fastest rate since July 1996.

On the other hand, new order growth boosted from the ten-month low seen in December due to easing restrictions and less coronavirus concerns.

Meanwhile, the manufacturing PMI printed at 56.9, below the previous and forecast 57.9.

This is the slowest economic growth in 11 months, with many experts believing that forward-purchasing and supply chain issues are considered to be the main driving factors.

Chris Williamson, chief business economist at IHS Markit, said:

‘Consumer-facing businesses have been hit hard by Omicron and manufactures have reported a further worrying weakening of order book growth, but other business sectors have remained encouragingly robust.

'Looking ahead, while the Omicron wave meant the hospitality sector has sunk into a third steep downturn, these restrictions are now easing, meaning this downturn should be brief. Many business and financial services companies have meanwhile been far less affected by Omicron, and saw business growth accelerate at the start of the year.’

Euro (EUR) Edges Higher Amid Mixed Eurozone PMI Figures

Meanwhile, the Euro is trending higher against the Pound following the release of services and manufacturing PMI data for the Eurozone.

The Eurozone’s manufacturing PMI for January exceeded expectations this morning by printing at 59, above the previous and forecast readings of 58 and 57.5, respectively, showing expansion where it had been expected to weaken.

On the other hand, the Eurozone’s service PMI printed below expectations, reaching 51.2, instead of the forecast of 52.2 and under the previous score of 53.1.

This is capping the Euro’s potential as it shows the slowest rate of growth since April and is only just above the point of stagnation.

Chris Williamson, chief business economist at IHS Markit, said:

‘Not only has the alleviating supply crunch helped factories boost production, but cost pressures in manufacturing have also moderated.

‘Importantly, while the Omicron wave has dented prospects in the service sector, the impact so far looks less severe than prior waves.

'Meanwhile, perceived prospects have improved among manufacturers, linked to fewer supply shortages adding to the brightening outlook.’

In addition, Germany, the strongest economy in Europe, also received strong PMI figures today which is further bolstering EUR’s potential.

GBP/EUR Exchange Rate Forecast: Will ‘Partygate’ Report Weigh On GBP?

Looking ahead, the Pound Euro (GBP/EUR) exchange rate is likely to be influenced by UK political developments through the first part of this week’s session.

Sterling is likely to remain vulnerable to the political uncertainty surrounding the UK government as Sue Gray’s investigation regarding Boris Johnson and ‘partygate’ is reportedly expected to be published this week.

Meanwhile, the single currency may be pressured by tomorrow’s German Ifo Business climate index, as the figures are predicted to decrease marginally from 94.7 to 94.6.

Additionally, ongoing Brexit negotiations are likely to continue to drive volatility between the pairing.

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