Pound Euro (GBP/EUR) Exchange Rate Loses Traction as UK Consumer Credit Growth Slides

January 3, 2020 – Written by Frank Davies

Weaker UK Consumer Credit Weighs on Pound Sterling Euro (GBP/EUR) Exchange Rate

A sharper-than-expected easing in November’s UK consumer credit figure left the Pound Sterling to Euro (GBP/EUR) exchange rate on the back foot ahead of the weekend.

As borrowing dropped from 1.33 billion to 0.56 billion this suggests that households took a more cautious view ahead of December’s snap general election, putting further pressure on the economy.

The mood towards Pound Sterling also soured thanks to a deeper contraction from December’s construction PMI, which slumped to 44.4.

With the economy continuing to signal a likely fourth quarter slowdown investors saw little incentive to buy into the Pound on Friday, leaving GBP exchange rates exposed to fresh losses.

Underwhelming German Unemployment Data Limits EUR Exchange Rate Upside

While German unemployment rose further than forecast in December this failed to boost the headline unemployment rate, which held steady at 5%.

Even so, this disappointing showing left the Euro with limited support as worries over the health of the Eurozone’s powerhouse economy continued to mount.

In the wake of Thursday’s underwhelming manufacturing PMI markets remained wary of the potential for Germany to slip into a state of technical recession in the near future.

As long as the German economy appears on track to slow in the fourth quarter the upside potential of EUR exchange rates is likely to prove limited.

Euro Looks for Rally on Rising German Inflation

The mood towards the Euro could improve on the back of December’s German consumer price index report, however.

As forecasts point towards a solid uptick from 1.1% to 1.4% for the headline inflation rate this may encourage investors to pile back into the single currency once again.

Although even an acceleration to 1.4% would still fall some way short of the European Central Bank’s (ECB) 2% inflation target this could offer the Euro a solid boost against its rivals.

On the other hand, signs that inflationary pressure is failing to pick up as anticipated within the German economy would leave EUR exchange rates vulnerable to renewed selling pressure.

GBP/EUR Exchange Rate Downtrend to Extend on Weak UK Services PMI

Further weakness could be in store for the Pound, meanwhile, as markets brace for the release of the finalised UK services PMI.

Confirmation that the service sector sunk deeper into a state of contraction at the end of 2019 may prompt additional losses for the GBP/EUR exchange rate.

As the service sector remains the primary driving force of the UK economy any sustained slowdown here would have a significant impact on the fourth quarter gross domestic product reading.

If investors see reason to fear a potential quarterly growth contraction GBP exchange rates may struggle to find any particular traction in the near future.

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TAGS: Pound Euro Forecasts