Last week saw the Euro to Pound exchange rate open trading in the region of 0.8792 and close up higher around 0.8857.
This EUR/GBP appreciation was mainly down to late-week Pound Sterling weakness, which was caused by growing concerns about the current progress of Brexit discussions.
The talks to decide the UK-EU relationship after parting saw a burst of activity in late 2017, but have since stalled over issues such as the state of the Irish border after Brexit.
Eurozone news was mostly disappointing last week, showing falling economic confidence and lower estimates for German and Eurozone-wide inflation.
The inflation readings were a particularly poor close to weekly Eurozone news, as a slower pace of inflation could increase the wait before the European Central Bank (ECB) finally raises interest rates.
Euro to Pound (EUR/GBP) Exchange Rate Tight as Trade War Fears Grip EUR Traders
The Euro (EUR) has held close to opening levels against the Pound (GBP) today, following the release of unsettling PMI data and a decline in global market sentiment.
In the former case, the morning’s Eurozone manufacturing PMI readings for June have shown a decline in France, Germany and across the single currency bloc as a whole.
The Eurozone-wide reading fell below forecasts, which led IHS Markit Chief Business Economist Christ Williamson to say:
‘The biggest concern is the extent to which export order book growth has cooled since the start of the year, and could soon go into decline.
‘The survey reveals mounting worries from companies relating to the impact of tariffs and trade wars, suggesting firms are bracing themselves for the potential for further export losses.
‘Not surprisingly, business expectations for future production deteriorated in June to the lowest November 2015.’
Sentiment has shifted against the Euro today because of trade war fears; although the US could ultimately be harmed by a trade-based conflict, the US Dollar has risen in value and pushed down the Euro in the process.
GBP/EUR Exchange Rate Static after Lacklustre UK Manufacturing PMI Stats
The Pound (GBP) has traded in a narrow range against the Euro (EUR) today, following the release of June’s UK manufacturing PMI.
This measurement of manufacturing sector activity showed a scarcely-perceptible rise during the previous month, advancing from 54.3 points to 54.4.
Problematically, even this fractional increase wasn’t a sign of major growth ahead, instead representing cleared order books and completed backlogs.
Giving the results a cautious assessment, IHS Markit Director Rob Dobson said:
‘The slowdown in new order growth since earlier in the year has left manufacturers increasingly reliant on backlogs of work and inventory building to maintain higher output.
‘This is a position that cannot be sustained far beyond the immediate horizon. The trend in demand will need to stage a much firmer rebound if a further slowdown in output growth is to be avoided.
‘How likely such a revival is remains in some doubt, with the June survey also seeing business optimism drop to a seven-month low amid rising concerns about possible trade tariffs, the exchange rate and Brexit uncertainty.
‘With industry potentially stuck in the doldrums, the UK economy will need to look to other sectors if GDP growth is to match expectations in the latter half of the year.’
Euro to Pound (EUR/GBP) Exchange Rate Losses Forecast if Eurozone Sales Data Disappoints
Looking ahead, the Euro (EUR) could struggle in trading against the Pound (GBP) on Tuesday morning, when high-impact Eurozone retail sales data comes out.
Levels of sales activity are predicted to have slowed for May’s year-on-year reading, while month-on-month activity is predicted to remain static at 0.1%.
There might be some relief when European Central Bank (ECB) official Peter Praet speaks during the afternoon, but Mr Praet won’t necessarily be discussing monetary policy.
The UK will have a greater monopoly on economic data on Tuesday and Wednesday, with high-impact construction and services PMIs coming out over the two days.
The construction reading is tipped to show slowing levels of economic activity, while no change has been forecast for the services sector reading.
Regardless of how the construction reading prints, the services PMI should have the greater effect on the GBP/EUR exchange rate this week.
This covers parts of the economy like retail sales, tourism and financial services, so a major rise can have a strong positive impact on the Pound.
June is the first month of summer and as such, higher levels of tourist activity are to be expected; a failure to meet this expectation might have the undesired effect of damaging the GBP/EUR exchange rate.
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TAGS: Euro Pound Forecasts