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GBP/EUR Could Appreciate On Sturdy UK Services PMI

Posted by on January 3rd, 2017. Connect with us on .

pound sterling euro exchange rate

After a quiet week of holiday trading GBP/EUR appreciated by around a cent this morning in reaction to better-than-anticipated UK manufacturing data.

Data On Hold During Holiday Period

There were very few economic releases between Christmas and the New Year and the data that was released – German retail sales and UK housing figures – was deemed inconsequential for the Pound to Euro exchange rate. This quiet period allowed GBP/EUR to fluctuate between 1.16 and 1.17.

However, the exchange rate perked up this morning when British manufacturing data printed at a shock two-and-a-half-year high. Smashing forecasts of 53.3 by rising from 53.6 to a 30-month high of 56.1, the upbeat factory output PMI drove Sterling higher versus the Euro.

GBP/EUR Could Rally If Service Sector Strengthens

If December’s strong manufacturing performance translates into sturdy output across the rest of the economy then we could see Sterling post further gains versus the single currency.

Wednesday’s UK construction output PMI is tipped to come in at 52.6, slightly below November’s tally of 52.8, but because the sector only accounts for around 6% of UK GDP most analysts will be focussing on Thursday’s service sector PMI. If the dominant services industry, which accounts for over 70% of British growth, performs as well as the factory sector then we could see GBP/EUR break through resistance at 1.19 and possibly rally towards 1.20.

However, if the services score does not match the manufacturing PMI then Sterling’s recent gains could easily collapse. Especially considering that Eurozone consumer prices are tipped to have risen from 0.6% to 1.0% in December. Tepid inflation has been a real problem for the Euro in recent years, but if the European Central Bank’s stimulus plans are seen to be paying off then it could pre-empt an end to rock-bottom interest rates and quantitative easing, which would likely bolster the appeal of the common currency.

Data Item Market Expectation
4th January GBP Markit/CIPS UK Construction PMI (DEC) 52.6
4th January EUR Euro-Zone Consumer Price Index Estimate (YoY) (DEC) 1.00%
5th January GBP Markit/CIPS UK Services PMI (DEC) 54.7

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