- Euro Pound Hits 0.8830 – Pound Euro Slides 1.1322
- UK manufacturing PMI Disappoints – Pound Stumbles
- Eurozone Factory PMI Hits 6.5 Year High – Euro Soars in the Early Hours
The Euro Pound exchange rate soared in the early hours of the morning as UK factory growth was demonstrated to have slowed.
The UK’s IHS Markit manufacturing PMI (which measures activity across the sector), dropped to a score of 55.9 in September, down from August’s 56.9 print and below the market forecast of 56.4.
Whilst this print remains above the long-run average of 51.7, it’s still a drop taking place at a time when markets are extremely sensitive to the strength of the UK economy (with a future interest rate hike being highly dependent on the performance of UK data).
As a result, demand for Sterling dropped immediately as markets assessed the fact that factory growth in the UK failed to match the performance demonstrated by the Eurozone, thus making the Euro the more attractive option.
Mike Rigby, Head of Manufacturing at Barclays also highlighted that manufacturers could be forced into continuing to raise prices, further impacting domestic demand and stunting growth:
‘With cost pressures remaining elevated and margins being increasingly squeezed, it’s only a matter of time before manufacturers raise prices which will likely impact the domestic demand that has been fuelling growth in the sector’.
Eurozone Factory PMI Climbs to 6.5 Year High, EUR Bolstered
Markit also reported that the Eurozone’s manufacturing sector posted its best month since Q1 2011 by printing at 58.1 in September, above August’s 57.4.
This reading was boosted by a jump in new orders for exports, with work backlogs rising the most for some 11 years and job creation also hitting at a high point.
Chris Williamson, chief business economist at IHS Markit stated:
‘The recovery is also looking increasingly broad-based, with rising demand across the region lifting all boats’.
Indeed, whilst Germany recorded the strongest growth out of the bloc, the Netherlands wasn’t far behind and Greek factories logged their own fastest rate of growth in a decade.
Pound Sterling (GBP) Stabilised by Comments from Finance Minister Hammond
UK Finance Minister Philip Hammond took a positive stance this morning when he discussed the UK economy and Brexit during an interview with ITV.
Hammond used the opportunity to defend Capitalism – confronting arguments made by Labour leader Jeremy Corbyn the previous week, by asserting that the UK’s economy is; ‘not broken: it is fundamentally strong’.
These comments helped stabilize the Pound’s fall this morning, pushing EUR GBP back to steadier levels.
Euro Pound Outlook: Volatility Ahead on Big Data this Week
The forecast for EUR GBP this week remains one of volatility, with an abundance of data releases due for both the bloc and the UK.
Markit releases will continue throughout the week, along with the record of the BoE’s financial policy committee’s September meeting on Tuesday and Eurozone retail sales on Wednesday.
Beyond this, markets will be keen to hear this week’s speeches from European Central Bank (ECB) Governor Mario Draghi on Wednesday and Policymaker Peter Praet on Monday and Thursday.
Whilst Praet has recently called for ‘prudence’ in regards to adjusting monetary policy, there may be room for the Euro to climb when the ECB begins the tapering of its quantitative easing scheme this month.
