- Pound (GBP) under pressure amid covid & Brexit concerns
- Manufacturing PMI due
- Euro (EUR) strengthens on surging inflation
- Eurozone manufacturing PMI & German retail sales in focus
The Pound Euro (GBP/EUR) exchange rate is extending losses on Wednesday. The pair settled -0.13% lower in the previous session at €1.1645, after falling as low at €1.1626. At 05:45 UTC, GBP/EUR trades -0.02% at €1.1643.
The Pound has traded under pressure this week amid growing concerns over rising covid numbers as the schools are set to return. Covid cases rose by 32,181 on Tuesday. The UK is bracing for a final decision on booster jabs amid concerns that vaccines lose their effectiveness after five to six months.
Brexit concerns also dampen demand for the Pound, after comments from the ex-DUP leader that damage from Brexit could be irreparable.
Looking ahead PMI data is in focus. The UK manufacturing PMI is expected to confirm the preliminary reading of 60.1 for August. The level 50 separates expansion from contraction. This would be down slightly from July’s 60.4, although still one of the fastest rates of expansion on record.
Manufacturing activity peaked in May at 65.6 as the sector saw demand surge amid the reopening of the economy. The sector accounts for about 10% of UK GDP.
The Euro pushed higher in the previous session following stronger than forecast Eurozone inflation. Inflation as measured by the consumer price index rose to a higher than expected 3% year on year in August the highest reading in almost a decade. This was up from 2.2% in July and ahead of the 2.8% that analysts had penciled in. Core inflation which strips out more volatile items such as food and fuel rose to 1.6%, up from 0.7%.
The higher levels of inflation could prompt the ECB to consider slowing its bond purchasing programme sooner.
Looking ahead the economic calendar will remain in focus with German retail sales and Eurozone manufacturing PMI data due to be released.
German retail sales are expected to slow to 3.7% year on year growth, down from 6.2%. On a monthly basis retail sales are expected to slow -0.9% after surging 4.2% last month.