Pound-to-Euro Pressured by UK Services Contraction

– Written by


Frank Davies

STORY LINK Pound-to-Euro Pressured by UK Services Contraction

The Pound Euro (GBP/EUR) exchange rate struggled to find a clear direction on Tuesday as investors digested the latest PMI surveys from both the UK and the Eurozone.

At the time of writing, GBP/EUR was trading at €1.1588, virtually unchanged on the day.

The Pound (GBP) came under pressure on Tuesday after the UK’s latest PMI surveys painted a gloomy picture of the domestic economy.

June’s figures showed that the UK’s crucial services sector remained in contraction, confounding expectations for a return to growth. Meanwhile, manufacturing activity also lost momentum, adding to concerns over the country’s economic outlook.

With the data pointing to persistent weakness across key parts of the economy, Sterling struggled to attract support and slipped against its stronger peers.

The Euro (EUR) struggled to find support on Tuesday morning after the Eurozone’s latest PMI releases pointed to ongoing fragility in the bloc’s economy.

The manufacturing PMI unexpectedly softened, slipping from 51.6 to 51.3, while the services index improved from 47.7 to 48.9. However, with the services sector still below the 50-point threshold, the data continued to signal a contraction.

Although overall private sector activity showed some signs of recovery, it remained in contraction for a third straight month, keeping concerns over the Eurozone’s economic outlook alive.

This left the Euro muted, preventing the common currency from making gains against the Pound.

Near-Term GBP/EUR Forecast: German Business Morale to Support the Euro?

Looking ahead, Germany’s latest IFO business climate index opens Wednesday’s session. Economists expect morale to have improved in June, which could offer the Euro some early support.

Meanwhile, the Pound may be driven by speeches from three Bank of England (BoE) policymakers throughout the afternoon. Should they deliver broadly dovish remarks, Sterling could come under renewed pressure.

UK politics may also remain in focus following Prime Minister Keir Starmer’s resignation. With Labour MPs likely positioning themselves ahead of Andy Burnham’s expected premiership, any signs of internal party tensions could weigh on GBP.

Markets may also be wary of the potential direction of economic policy under a new Chancellor, with uncertainty around the next government’s fiscal stance potentially adding to pressure on the Pound.

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TAGS: Pound Euro Forecasts