Euro to Pound (EUR/GBP) Exchange Rate Firm; UK and Eurozone PMI Figures Flop
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The Pound is experiencing a difficult week on what appears to be a slippery slope down against other majors in the currency market. UK Manufacturing Purchasing Managers Index (PMI) figures slid to far lower than expected, showing UK manufacturing expansion slowing, thereby offering support for other majors against Sterling.
Friday’s statistic showed UK PMI only reaching 55.4 in July, a shock from the forecast and the previous June figure of 57.2. The Pound had already softened in recent weeks following some dips in data and the International Monetary Fund claiming that Sterling was overvalued.
However, the Bank of England (BoE) has previously commented that they expected the UK economic recovery to slow slightly in the latter half of 2014.
Moreover the currency market is presently trading amid geopolitical tensions, catalysed by the downing of the Malaysian Airlines flight MH17 plane last week. As sanctions are imposed on Russia, by the US and EU, exchange rates remain highly volatile.
Markit representative Rob Dobson commented: ‘It remains too early to gauge the impact of the Ukraine crisis, but the worry is that the combined effects of expected policy tightening, heightened economic uncertainty and sluggish trade could mean manufacturing growth could suddenly weaken more than expected.’
Foreign exchange expert Roberto Mialich suggested: ‘With weak data, Sterling will be pressured lower. The firmer Dollar or disappointing UK data—as emerged of late—may keep the Pound on a sluggish tone.’
Conversely Eurozone PMI figures have failed to reach expectations also. Germany’s Manufcaturing PMI only reached 52.4 in July, whilst economists had forecast 52.9. Furthermore Eurozone Manufacturing PMI fell short at 51.8 in July, in comparison to the predicted and June’s 51.9 figure. Although both numbers are held above 50 which indicate expansion, the Eurozone needed positive statistics to help enhance the fragile Eurozone recovery.
Moreover the Eurozone has seen the slowest inflation rate since the beginning of the financial crisis in 2009, residing at 0.4%.
Researcher for ABN Amro Nick Kounis commented: ‘This is most likely the trough in inflation, and inflation will move slowly upwards from here. It seems unlikely the ECB [European Central Bank] will take fresh measures to ease policy further—I don’t see this as a trigger for a large-scale quantitative easing program, as long as this proves the trough.’
For now the EUR to GBP exchange rate will remain volatile, dependent on geopolitical escalations and any other alterations in the currency market. However the Pound seems likely to remain soft for the foreseeable future as the UK figures prove unfavourable and talks of overvaluation circulate. The current Pound to Euro exchange rate rests at 1.2562.