GBP/EUR: Will German Factory Orders Help Euro Pare Losses?

The Pound Sterling bounded higher versus euro for a second straight session on Wednesday as it continued to claw back Monday’s Brexit inspired losses. The pound euro exchange rate closed the previous session 0.2% higher at €1.1820 as investors cheered more solid UK data. However, with no further high impacting UK data this week, GBP/EUR could be driven by Eurozone figures.

GBP/EUR –  Activity in the UK’s dominant sector surged in January

UK service sector data showed that activity in the UK’s dominant sector surged in January, beating analysts’ forecasts and delivering the strongest growth in over a year. The IHS/Markit/Cips service activity index reached 53.9 in January, significantly above the 52.9 expected. It was also considerably higher than the 50-level reached in December. The level 50 separates expansion from contraction.

Higher levels of consumer spending and business investment contributed to January’s rise in PMI data. Job creation was also encouraging, at its highest level since July.

The strong service sector makes for a hat-trick of upbeat PMI readings this week, with manufacturing and construction also outperforming analysts’ expectations. This is being interpreted as a clear sign that the UK economy has picked up since the general election, owing to the improved political landscape translating into higher business and consumer spending.

There is no influential UK data due to released today or tomorrow leaving the pound vulnerable to no trade deal Brexit fears.

Euro

The euro was firmly out of favour on Wednesday following a mixed batch of data from the Eurozone. On the positive side, Eurozone business activity accelerated in January. The Eurozone composite pmi which is considered a good indication of economic health, hit a 5-month high last month. This is the latest piece of evidence suggesting the worse could be over in the eurozone economy. However, it is worth noting that this data was collected before the coronavirus outbreak, which has since increased risks to global growth. Retail sales on data was less impressive.

Today euro investors will look towards the release of German factory orders and the ECB economic bulletin. Analysts are expecting German factory orders to increase 0.7% month on month in December, well above the -1.3% decline in November. Solid data could further support the idea that the slowdown in the German economy is bottoming out.

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