Pound Drops vs. Euro on Brexit Fears & Weak Manufacturing Data
  • Pound (GBP) advances ahead of PMI data
  • Service sector & manufacturing expected to expand firmly.
  • Euro (EUR) looks to PMI data
  • Eurozone consumer confidence improved in June

The Pound Euro (GBP/EUR) exchange rate is clawing higher paring mild losses from the previous session. The pair settled -0.06% lower at €1.1679 after briefly spiking up to €1.17.  At 05:45 UTC, GBP/EUR trades +0.08% at €1.1688.

The Pound came under pressure on Tuesday after data from the Office of Budget Responsibility revealed that the government borrowed a staggering £24.3 billion in May. Whilst this is the second highest borrowing total for the month of May since records began, it wasn’t all doom and gloom. This was a significant improvement from the £30.1 billion in April and also undershot the OBR forecast of £28.5 billion by £4.2 billion.

A stronger than economic rebound meant that the government received more tax receipts and spent less on supporting the economy. As employment picked up the amount the government spent of furlough slowed.

Attention will now turn to the PMI readings for both the manufacturing sector and the services sector for June. Analysts are expecting activity in the manufacturing sector to ease back slightly to 64, down from 65.6 in May.

The services sector is expected to see activity expand firmly June to 62.8, down slightly from 62.9 in May after lockdown restrictions were eased.

PMI data will also be in focus for the Eurozone. After Eurozone business activity surged in May as a result of the easing of some covid related restrictions. The service sector surged back into life last month whilst manufacturing also experienced its best month on record. Investors will be keen to see whether the momentum can be maintained for another month. A strong reading could help boost the Euro, as it would bode well for stronger economic growth across the quarter.

The data comes after data revealed that consumer confidence in the block continued improving in June. The accelerating vaccine campaign along with the lifting of pandemic restrictions has helped to boost household morale.

Consumer confidence rose to -3.3 in June up from -5.1 in May when it reached pre-pandemic levels.