ALERT: Pound Euro Exchange Rate Slumps as UK Manufacturing Data Disappoints, Down 0.22%
- Written by: Will Peters
-
On Friday the pound to euro exchange rate (GBP/EUR) is trading 0.22 pct lower on a day-to-day basis having reached 1.2585.
Turning it around the euro pound rate is thus at 0.7945.
Please note that the above quotes are taken from the wholesale markets; your bank will affix a spread to the rate at their discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering up to 5% more currency in some instances. Find out more.
Sterling hit by Poor Manufacturing PMI
The culprit for Friday's decline in the GBP to EUR exchange rate is the Markit PMI Manufacturing data released in the morning session.
Manufacturing PMI read at 55.4, markets were expecting a reading of 57.2. This suggests that economic activity in the third quarter has got off to a less-than-racy start and provides the necessary catalyst for traders to call time on the impressive GBP/EUR rally witnessed for much of this summer.
Euro sentiment remains weak
No major data from the euro in the immediate future, however traders are digesting Eurozone inflation figures; CPI slipped further in July to 0.4% y/y, the lowest level since 2009.
"The weakness in headline CPI is unlikely to trigger more action from the ECB, given the comprehensive collection of easing measures announced in June (which are yet to be implemented). Nevertheless it will support the underlying weak sentiment towards EUR," say Lloyds.
The end of the month favours the euro
A sudden break down in the GBP/EUR on the last trading day of the month was noted.
The reason being is that at the end of each month global money managers and financial institutions look to square currency exposure and thus place certain demands on the currency markets to balance risk.
This month analysts are suggesting the euro will be the winner, "the model output for this month shows a modest USD selling signal against EUR, while neutral for other currencies," say Barclays.
ECB may have to act as inflation falls, EUR bulls will be dismayed
Further worries for the Eurozone have emerged with inflation figures remaining benign suggesting the economy is suffering a lack of activity.
The worry for those euro-bulls hoping for further gains in the EUR/GBP is that the European Central Bank (ECB) will be forced to introduce fresh stimulatory measures.
Where the Bank of England and US Federal Reserve are looking to tighten policy the ECB is looking to loosen policy - this plays negative on the euro.
Commenting is Dennis de Jong, managing director at UFX.com:
“The unprecedented stimulus measures that the ECB introduced last month haven’t had the desired effect yet when it comes to inflation. A further drop is a big worry for the central bank and Mario Draghi has made it clear that they are ready to act swiftly with further monetary policy easing.
“However, the increasing geopolitical tensions in Ukraine and the Middle-East remain a big threat to the stability of the Eurozone and the ECB have plenty more tough decisions ahead.”
BUT: Sentiment towards the pound is also dropping off
Will it be a mere matter of time before the bull run in the pound sterling starts again?
Not necessarily. While the longer-term picture remains constructive it must be noted that near-term pressures could well persist.
"Sterling has lost more ground early today as the Gfk consumer confidence index in the UK dropped for the first time in six months having reached a 10-year high last month. There have been clear signs of uncertainty creeping into the minds of market participants and it now appears as though spending appetite in the UK is also dropping off," says Kamil Amin at Caxton FX.
Technical outlook for the euro pound
Concerning the technical outlook for the euro pound exchange rate pairing, analyst Luc Luyet at MIG Bank tells us:
"EUR/GBP remains close to the resistance area defined by the declining channel (around 0.7929) and 0.7940. Another resistance lies at 0.7981 (see also the declining trendline). A break of the initial support at 0.7904 (28/07/2014 low) is needed to suggest the end of the recent rebound. Another hourly support stands at 0.7874.
"In the longer term, the break of the key support area between 0.8082 (01/01/2013 low) and 0.8065 (05/06/2014 low) opens the way for a full retracement of the rise that started at 0.7755 (23/07/2012 low).
"Another strong support stands at 0.7694 (20/10/2008 low). A break of the resistance at 0.8034 (25/06/2014 high) is needed to suggest some exhaustion in the medium-term selling pressures."