Pound Euro (GBP/EUR) Exchange Rate Slumps as UK’s Private Sectors Struggle

January 24, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Slumps as UK’s Private Sectors Struggle

Pound Euro (GBP/EUR) Exchange Rate Drops as UK Private Sector Struggles

The Pound Euro (GBP/EUR) exchange rate slipped on Tuesday. The pairing came under pressure from disappointing data releases for the UK’s private sectors. Additionally, a return to growth for the Eurozone’s services sector added to GBP/EUR’s downturn.

At time of writing the GBP/EUR exchange rate was at around €1.1332, which was down roughly 0.5% from that morning’s opening figures.

Pound (GBP) Falls as Private Sector Contractions Adds to UK’s Poor Outlook

The Pound (GBP) slipped on Tuesday after some disappointing data releases. The figures added to the poor outlook for the UK’s private sectors and weighed on Sterling.

Performance across all private sectors in the UK contracted in January, with the UK’s dominant services sector seeing an above-forecast slump. The PMI for the services sector fell to 48 versus a forecast fall to 49.7.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said:

‘Weaker than expected PMI numbers in January underscore the risk of the UK slipping into recession. Industrial disputes, staff shortages, export losses, the rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year.’

The PMIs did bring some cause for optimism, however. Performance in the UK’s manufacturing sector contracted by much less-than-forecast, pointing to easing price pressures.

The latest data from the Confederation of British Industry (CBI) added to the Pound’s downturn on Tuesday. January’s industrial trends orders fell sharply above forecasts, pointing to lessening demand in the sector.

Euro (EUR) Bolstered by Return to Growth for Eurozone Services Sector

The Euro (EUR) climbed on Tuesday after the latest PMIs for the German and Eurozone private sectors. EUR also found support from a persistently hawkish stance from the ECB.

January’s PMI indicated a return to growth for the Eurozone’s services sector. Germany’s services sector also returned to growth in January. Analysts pointed to an easing in supply chain issues as well as a fall in energy prices.

Despite the stronger performance, markets still anticipated a 50bps rate hike from the ECB in a bid to curb persistent inflationary pressures. The bets on further rate hikes added to the EUR’s gains on Tuesday.

Andrew Kenningham at Capital Economics said:

‘The PMIs suggest that price pressures remain strong. So there is no prospect of the ECB taking its foot off the brake any time soon.’

A persistently hawkish stance from ECB policymakers also contributed to the Euro’s gains on Tuesday. Speaking on Tuesday, ECB board member Joachim Nagel said:

‘We have to continue tightening monetary policy to dampen price pressures and keep inflation expectations anchored at our inflation target.’

GBP/EUR Exchange Rate Forecast: Will Downbeat Data for UK Retail Sector Weigh on Pound?

Looking ahead to the rest of the week for the Pound, the latest distributive trades figures from the Confederation of British Industry (CBI) could pull Sterling lower if they print as forecast. The results of January’s survey are expected to slump which could dent the outlook for the UK’s retail sector.

The Pound could also be affected over the course of the week by domestic pressures. Industrial action is expected to continue across the UK.

For the Euro, the minutes from the ECB’s latest non-monetary policy meeting could prompt movement in EUR on Wednesday if they provide any insight into the central bank’s forward policy.

Also on Wednesday, January’s business confidence figures for Germany could provide a boost to the Euro if they rise as forecast. The index is expected to climb for a fourth consecutive month as energy costs and price pressures ease in the trading bloc’s largest member.

Finally on Friday, a speech from ECB President Christine Lagarde on Friday could push the Euro higher still. ECB policymakers including Lagarde have remained hawkish in recent weeks. The prospect of further ECB interest rate hikes may bolster EUR.

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TAGS: Pound Euro Forecasts