Euro Pound Sterling (EUR/GBP) Exchange Rate Softens as UK Construction Picks Up
As the UK construction PMI bettered forecasts to rise from 53.2 to 53.4 in November, delivering another solid month of expansion, the mood towards Pound Sterling (GBP) picked up.
Following on the heels of Monday’s disappointing manufacturing PMI this stronger showing gave investors fresh cause for confidence in the Pound.
With the data also pointing towards a solid rebound in business optimism from October’s six-month low the report painted a much more encouraging picture of the domestic outlook.
Tim Moore, Economics Associate Director at IHS Markit, commented:
‘November data indicates that the UK construction sector remains in expansion mode, with resilient business activity trends seen for housing, commercial and civil engineering activity. The latest overall rise in construction output was the fastest since July, helped by a stronger contribution to growth from house building activity.’
This left the Euro to Pound Sterling (EUR/GBP) exchange rate trending lower, reversing some of the previous day’s gains.
Eurogroup Meeting Fails to Encourage Euro (EUR) Support
The Euro (EUR) did not find much in the way of support on the back of last night’s Eurogroup meeting of finance ministers, who backed the European Commission’s assessment of the 2019 Eurozone budget proposals.
This latest rejection of the controversial Italian budget plan raises the risk of further political conflict in the weeks ahead.
Although October’s Eurozone producer price index data bettered expectations this failed to shore up EUR exchange rates.
While the uptick from 4.6% to 4.9% on the year suggests that inflationary pressure continues to build within the currency union this is unlikely to alter the current policy outlook of the European Central Bank (ECB).
Unless Eurozone retail sales show a solid improvement in October, recovering from the previous month’s stagnation, the single currency may struggle to pick up momentum in the near term.
Pound Sterling (GBP) Exchange Rates to Benefit From Improved UK Services PMI
Tomorrow’s UK services PMI could provoke further volatility for the EUR/GBP exchange rate, given the significant role that the sector plays within the UK gross domestic product.
An uptick in the headline PMI may encourage investors to pile into the Pound, with a higher reading increasing the odds of an improved fourth quarter GDP.
On the other hand, if the underlying details of the report highlight an increased sense of anxiety over the economic outlook this could weigh heavily on GBP exchange rates.
Unless growth within the service sector looks set to accelerate further in the months ahead the positive impact of the PMI is likely to prove limited.
Thus, as long as Brexit-based uncertainty continues to dominate the headlines the Euro to Pound Sterling (EUR/GBP) exchange rate is likely to experience less in the way of downside pressure.
