The Pound (GBP) to Euro (EUR) exchange rate softened further away from a 2-year high on Friday after data showed that activity in the UK’s dominant service sector slipped to a 3-month low in September.
Concerns are mounting that the UK’s economic recovery is beginning to lose momentum as recent data releases confirm that activity in all of the nation’s main sectors except Construction is starting to slow.
According to the Markit compiled Services Purchasing Managers Index, activity in the sector dipped to a 3-month low of 58.7, a drop from the 60.5 figure recorded in August.
In a PMI, any figure above 50 indicates expansion whilst one below indicates contraction.
‘September’s PMI surveys suggest that the UK most likely enjoyed another spell of above-trend economic growth in the third quarter, but the recovery appears to be losing its legs. The PMI surveys are collectively signalling GDP growth of 0.8% in the third quarter, down from 0.9% in the three months to June. However, the pace of expansion hit a six-month low in September and is showing signs of moderating further as we move towards the end of the year,’ said Markits chief economist Chris Williamson.
The softer data weakened the Pound as it added weight to Thursday’s comments made by Bank of England Policy Maker Ben Broadbent who said that the strength of the UK economy does not yet justify the introduction of a rise to the nation’s interest rate.
The Euro saw a rebound after European Central Bank President Mario Draghi announced new plans to buy covered bonds and asset backed securities for the next two years. The single currency was continuing to benefit from market expectations that the plans announced by the ECB on Thursday will not be enough to weaken the currency.
The Euro was able to shake off the release of fresh economic data released on Friday, which showed that private sector growth in the Eurozone continues to wane. The latest PMI data showed that activity tumbled to its lowest level in 10-months.
Markit’s Eurozone PMI composite output index, which tracks activity across thousands of firms, has fell to a reading of 52.0 in September, down from 52.5 in August.
Some of the negativity created by that data was countered slightly by a report from Germany, which showed that service activity in the region’s largest economy expanded despite the slowdowns in France and Italy. The German services PMI rose to 55.7 in September, up from 54.9 in August, showing growth accelerated.
Pound to Euro (GBP/EUR) Exchange Rate Forecast
Gains for the Euro are likely to be short-lived as economic weakness continues to be prevalent in the region. The currency’s recent gains will not last long as the markets grow increasingly concerned over the health of the Eurozone economy.
‘It’s probably a relatively short-lived rally. The next negative economic print is going to weigh on the Euro again. I do not think it has substantial legs. It is kind of bouncing off the bottom.
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,0.7917 ,
Euro,, Pound Sterling,0.7852 ,
Euro,,Australian Dollar,1.4388 ,
Euro,,Canadian Dollar,1.4098 ,
Pound Sterling,,Euro,1.2726 ,
US Dollar,,Euro,1.2631 ,
[/table]
