The Euro Pound (EUR GBP) exchange rate began to retreat this morning as Sterling found its footing after struggling at the start of the week.
Pound (GBP) Strengthened by Uptick in Service PMI
Sterling began to rally against the Euro this morning as the UK’s services sector saw a surprise lift in activity last month.
According to data published by IHS Markit, the UK’s latest Service PMI rose from 53.2 to 53.6 in September, outpacing expectations that activity would remain flat last month, but still falling below the long-term average.
Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said;
‘Strong signals indicate a stagnation trend is developing in the sector. With a subdued rate of expansion in September, UK services maintained a lower than long-term average performance this month.’
The surprise uptick in activity helped to reverse some of the concerns about the UK’s economic growth at the end of the third quarter after data released earlier in the week showed a sharper than expected drop in both the Manufacturing and Construction sectors.
However the Pound’s gains were still tempered somewhat as the report painted a fairly bleak outlook for the UK’s largest wealth generating sector as business growth fell to a 13-month low and firms becoming increasingly reluctant to invest in the face of growing uncertainty surrounding Britain’s future outside the EU.
Euro (EUR) Strengthened as PMI Data Impresses
Meanwhile the Euro offered little resistance against Sterling’s advance this morning following some disappointing retail data from the Eurozone.
Investors reeled from the single currency today as figures released by European statistics agency Eurostat revealed that retail sales fell from -0.3% to -0.5% in August, shocking economists who had previously forecast that sales would have rebounded to 0.3%.
With the European Central Bank (ECB) expected to begin considering the possibility of winding down its stimulus programme over the coming months, markets are particularly concerned that the latest decline in sales may negatively impact the decision and cause the bank to become increasingly dovish.
EUR GBP Forecast: Draghi to Remain Cautious?
Looking ahead movement in the EUR GBP exchange rate later today will be dependent on the tone of Mario Draghi’s speech this evening, with the Euro likely to tumble further if the ECB President signals that it may still be too early to discuss tightening monetary policy.
Meanwhile the Pound may struggle to advance any further as markets become increasingly concerned by the progress of Brexit talks, especially after MEP’s vote yesterday to urge EU officials to delay Brexit trade talks unless there is a ‘major breakthrough’ in negotiations.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.8863 and the GBP EUR exchange rate was trending around 1.1282.