While typically a low-influence report, signs of resilience and strength in Britain’s latest UK construction PMI bolstered demand for the British Pound to Euro (GBP/EUR) exchange rate on Tuesday. The Euro was sold in reaction to a disappointing Eurozone retail sales report.
Despite its gains this week so far, GBP/EUR saw much greater losses last week. GBP/EUR slumped from 1.1376 to 1.1295 last week and briefly touched on a quarterly low of 1.1254. This week so far, GBP/EUR has trended within a tight region near the week’s opening levels – but the pair did reach a high of 1.1324 on Tuesday.
GBP Benefits from Stronger than Expected UK Construction Report
Markit’s June UK construction PMI was published on Tuesday morning, and bolstered Sterling support.
As the data beat forecasts it helped the Pound to edge higher against a weakened Euro.
Britain’s construction PMI was forecast to have slipped from 52.5 to 52.4, but it instead unexpectedly improved to a seven month high of 53.1. This was also the best print of 2018 so far.
According to Tim Moore, Associate Director of IHS Markit:
‘The latest increase in UK construction output marks three months of sustained recovery from the snow-related disruption seen back in March. A solid contribution from house building helped to drive up overall construction activity in June, while a lack of new work to replace completed civil engineering projects continued to hold back growth.
… Stretched supply chains and stronger input buying resulted in longer delivery times for construction materials during June. At the same time, higher transportation costs and rising prices for steel related inputs led to the fastest increase in cost burdens across the construction sector since September 2017.’
The construction PMI followed Monday’s UK manufacturing report, which had also beaten expectations and supported Sterling trade.
However, while there were signs of strength in the construction outlook, Brexit uncertainties still weighed and the construction PMI was overall too low-influence to notably boost Bank of England (BoE) interest rate hike bets regardless.
For now, Pound investors were more eager to await Wednesday’s anticipated UK serves stats rather than buy the British currency on construction data.
EUR Sold on Market Disappointment with Flat Eurozone Retail Sales
The Pound was able to more easily advance on Tuesday morning due to Euro weakness, as the Eurozone’s latest retail sales results disappointed markets.
May’s Eurozone retail sales results were forecast to have come in at 0.1% month-on-month, but instead printed at a stagnant 0.0%. Not only this, but the previous figure was revised lower too – from 0.1% to a contraction of -0.1%.
The year-on-year print was similarly disappointing, with the previous figure revised lower from 1.7% to 1.6%, and the May figure coming in at 1.4% rather than the forecast 1.5%.
The data indicated to investors that household activity was weaker than expected in the Eurozone bloc, potentially meaning that confidence was also worse than expected.
France’s May retail sales results were comparatively more optimistic, with the monthly figure improving to 0.8% and the yearly figure to 2.9%. However, this was not enough to keep the Euro appealing.
The retail sales results were the main cause of Euro weakness on Tuesday, as German Chancellor Angela Merkel appeared to succeed in preventing cracks in her coalition government from worsening.
GBP/EUR Forecast: UK Services PMI Could Influence GBP/EUR Outlook
Wednesday could be this week’s most important session for Pound to Euro exchange rate trade, as Britain’s key June services PMI report will be published.
Other notable ecostats due on Wednesday to keep an eye on include Markit’s UK composite PMI, as well as Markit’s final June services and composite figures for the Eurozone.
Ultimately though, as Britain’s services sector makes up a notable portion of UK economic activity, the services PMI has the biggest potential of any data this week to influence the UK economic outlook or Bank of England (BoE) interest rate hike bets.
If the services PMI beats forecasts, it could make investors more confident about the current health of Britain’s economy despite the broad Brexit uncertainties.
This would bolster Bank of England interest rate hike bets and help the Pound to advance towards the end of the week.
On the other hand, poor UK services data would make investors more anxious about Britain’s economic health and the Pound could weaken further.
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TAGS: Pound Euro Forecasts