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The pound dropped versus the euro on Monday. The pound euro exchange rate slumped over 1.1% hitting a 3-week low of €1.1739. GBP/EUR closed around the session low, as no trade deal Brexit fears and stronger than forecast Eurozone PMI data overshadowed improving UK manufacturing figures.

Pound to Euro Exchange Rate: The pound slumped on Monday as no trade deal Brexit fears returned

The EU and the UK set out their visions for the future relationship. Whilst the EU’s Michel Barnier insisted that an ambitious trade deal required a level playing field, UK prime minister Boris Johnson was clear that the UK was not interested in aligning with EU rules. Boris Johnson called for a Canada style free trade deal.

Boris Johnson’s reluctance to accept EU rules raises the prospect of the UK reverting to World Trade Organization terms if EU chiefs refuse to adopt a Canada style agreement.

Trade deal fears overshadowed data showing that activity in UK manufacturing sector beat analysts’ expectations. Data revealed that the manufacturing sector stagnated in January, a vast improvement on the months of contraction, as signs of a post-election bounce continue to filter through into the data.

Today investors will be looking towards UK construction activity data for further signs of a rebound in the UK, following the Conservative’s decisive win. Analysts are expecting the sector to have contracted at a slower pace in January, with PMI lifting from 44.4 to 47.1.

Euro

The euro pushed higher versus the pound, thanks in part to improving eurozone manufacturing figures. The IHS/Markit Manufacturing pmi data revealed that the contraction in the eurozone manufacturing sector eased in January. The sector, which had slumped heavily since the summer amid the US – China trade dispute was showing tentative signs of recovery. The improvement has come as tensions between the US and China ebbed following the signing of the first phase trade deal.

Coronavirus concerns are keeping any gains on the euro capped. China could struggle to hit the 6% GDP target this year as spending over Chinese New Year will have been significantly lower than the $145 billion spend in the previous year. A slowdown in China, the world’s second largest economy could quickly hit confidence across the globe.


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