GBP/EUR: Pound Looks To Service Sector PMI For Direction

The pound pushed higher versus the euro on Tuesday thanks to mounting signs of a bounce in the UK economy following the general election. The pound euro exchange rate trended northwards hitting a high of €1.1813, before easing slightly into the close. The pair ended the previous session with gains of 0.4%, recouping some of the 1.2% loss experienced earlier in the week.

Pound to Euro – Euro was broadly out of favour in the previous session

Investors had little in the way of high impacting economic data to digest and coronavirus fears continued to keep market participants on edge.

Today there is slew of macro data which will keep euro investors occupied. Composite pmi readings from the largest economies in the eurozone, and the composite pmi for the bloc as a whole will be watched. The composite reading is considered a good gauge of the overall health of an economy. Analysts are expecting the data to show the economies remained in expansion in January. Strong data will further support the idea that the slowdown in the bloc is starting to bottom out, with the green shoots of recovery appearing.

Pound

The pound received a lift in the previous session after data revealed that the downturn in the UK construction industry is easing, amid growing signs of a turnaround. Construction activity continued to fall in January, however, at a significantly slower place. The PMI reached 48.4, beating analyst forecasts of 46.6 and well up from December’s 44.4. The report also showed that optimism among building firms was at the highest level since 2018.

This is just the latest data release which points to increased business confidence and consumer sentiment following the Conservatives’ outright win in the December election. Earlier in the week, data showed that the manufacturing sector stagnated in January, a vast improvement from the deep contraction of earlier month.

Today investors will look towards the all-important service sector pmi. The UK service sector accounts for 80% of economic activity in the UK. Analysts are expecting to see a strong rebound in the sector, with the PMI to be 52.9.   A hat-trick of strong PMI data release could lift UK economic growth expectations, boosting the pound.

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