The Pound (GBP) to Euro (EUR) exchange rate was softer on Monday as concerns over the UK economic recovery prevented a rise despite data out of Germany coming in well below economist forecasts.
Sterling softened as it remained under pressure from data released last Friday which showed that the UK’s dominant Services sector grew at a slower than expected rate in September. The report added to a softer than forecast manufacturing PMI, indicating that the nation’s economic recovery is slowing.
On Monday, the Pound came under more pressure after Business Secretary Vince Cable said that the UK recovery is being hampered by stalled exports, which he blamed on the strong Pound.
In reality, the weakness of the Eurozone is the main reason for the slowing in demand for UK goods. Cable said that he believes the currency to be overvalued by as much as 10 to 15%. His comments add to those recently made by the International Monetary Fund (IMF) and Deputy Bank of England Ben Broadbent.
‘The market is not going to shake off these doubts they have about UK monetary policy anytime soon,’ said Bank of New York Mellon currency strategist Neil Mellor.
The Euro was able to remain firmer against the Pound and US Dollar on Monday even as economic data showed that Germany factory orders made their largest drop since the early part of 2009.
According to the Berlin based German Economy Ministry, orders, adjusted for seasonal shifts and inflation tumbled by -5.7% in August, wiping out the 4.9% increase seen in July. The drop was far worse than the -2.5% decline expected by economists.
Exports declined by 8.4% in August and domestic demand fell by 2%. Investment goods orders tumbled by 8.5% and basic goods orders dipped by 3%. The only improvement was seen in consumer goods orders, which rose, by 3.7%.
On an annual basis, orders declined by -1.3%.
The drop in orders was being blamed on falling confidence in the Eurozone economy and the ongoing political tensions with Russia over the fighting in Ukraine.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast
Further losses for the Pound are likely to be restrained if Tuesday’s economic data comes in positively. Industrial Production data is also due out of Germany, if that also comes in below expectations than the Euro will fall.
Despite comments made by economists and a softening run of PMI reports, the UK economy is continuing to perform strongly.
The Pound is likely to find support against the Euro as the two economies continue to diverge.
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.2540 ,
Euro,, Pound Sterling,0.7848 ,
Euro,,Australian Dollar,1.4383 ,
Euro,,Canadian Dollar,1.4081 ,
Pound Sterling,,Euro,1.2738 ,
US Dollar,,Euro,0.7973 ,
[/table]
