Pound Euro Exchange Rate Outlook: GBP/EUR Slips despite Downbeat Eurozone PMI

September 3, 2024 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate Outlook: GBP/EUR Slips despite Downbeat Eurozone PMI

The Pound Euro (GBP/EUR) exchange rate fell Monday despite news of improving manufacturing activity in the UK.

At the time of writing, GBP/EUR was trading at €1.1867, down approximately 0.2% from Monday’s opening rate.

The Pound (GBP) struggled to climb higher on Monday despite the publication of an upbeat British manufacturing PMI.

The UK’s finalised manufacturing index confirmed that the sector expanded in August, rising from 52.1 to 52.5. This release confirmed that UK manufacturing activity had reached a two-year high last month, signalling an ongoing period of private sector recovery in the UK.

Rob Dobson, Director at S&P Global Market Intelligence, commented:

The UK manufacturing sector remained a positive contributor to broader economic growth in August. The headline PMI hit a 26-month high of 52.5, reflecting solid expansions in output and new orders and the strongest jobs growth for over two years. The upturn is broad based across manufacturing, with the investment goods sector the stand-out performer.

Elsewhere, the positive PMI release also reinforced speculation that the Bank of England (BoE) might have more scope to defer further interest rate cuts than previously anticipated, thereby providing some support to GBP against its rivals. Additionally, improving market sentiment helped keep the increasingly risk-sensitive Pound afloat, as investors favoured riskier investment options.

Meanwhile, the Euro (EUR) moved without a clear direction on Monday, despite ongoing weakness in the Eurozone’s manufacturing sector.
The bloc’s finalised manufacturing PMI confirmed continued slack within the sector, dipping to an eight-month low. Although the PMI printed marginally above market projections of 45.6, at 45.8 in August, it still pointed to more than two consecutive years of monthly contractions in the Eurozone’s manufacturing sector.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, struck a cautious tone following the release, stating:
‘Things are going downhill, and fast. The manufacturing sector has been stuck in a rut, with business conditions worsening at the same solid pace for three straight months, pushing the recession to a gruelling 26 months and counting. New orders, both domestic and international, are slowing down even more, dashing any short-term hopes for a rebound.’

However, the single currency managed to post some modest gains against its UK counterpart, without a clear catalyst for movement.

Looking ahead, the British Retail Consortium (BRC) will release its latest retail sales monitor on Tuesday morning.

If the monitor indicates an uptick in UK consumer activity for August, this mid-tier data could offer modest support to the GBP, as increased consumer spending may help ease concerns over the UK's cost-of-living pressures. Meanwhile, in the Eurozone, speeches from European Central Bank (ECB) policymakers Claudia Buch and Kerstin af Jochnick on Tuesday could introduce some volatility to the euro. If either suggests that a September interest rate cut by the ECB is warranted, the EUR could weaken amid growing expectations of a rate cut.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts