- Pound (GBP) falls after weaker PMIs
- UK PPI data is due
- Euro (EUR) rises after stronger PMIs
- German IFO business climate is set to rise
The Pound Euro (GBP/EUR) exchange rate is falling for a fourth straight day. The pair fell -0.46% in the previous session, settling on Tuesday at €1.1331, after trading in a range between €1.1297 – €1.1411. At 05:45 UTC, GBP/EUR trades -0.20% at €1.1.
The pound fell in the previous session after a drop in UK business activity data field recession fears. The UK services PMI fell to 48 in January, down from 49.9 in December. The manufacturing PMI improved by more than expected to 46.7, up from 45.3. However, the broader composite PMI unexpectedly fell to 47.8 from 49. The level 50 separates expansion from contraction.
The weak PMI showed that economic activity in the private sector fell at its fastest rate in two years amid higher interest rates, strikes, and weaker consumer demand. The data highlights the risk of the UK falling into recession.
While the latest GDP data showed that the UK economy grew in November, output is still widely expected to fall across this year as the Bank of England continues to raise interest rates to tackle double-digit inflation.
Attention will now turn to UK PPI, which measures inflation at the factory gate. PPI is expected to Rise to 13.9% up from 13.3%, amid a shortage of labour and rising wages.
The euro pushed higher yesterday after business activity showed an unexpected return to expansion in January. The eurozone composite PMI rose to 50.7, up from 49.8, thanks to growth in the services sector.
The stronger-than-expected data suggests that the eurozone recession may not be as deep as initially feared.
German IFO business climate data is expected to support this view as well that a recession may well be milder than expected as inflation cools and the energy crunch failed to materialise.
The German IFO business climate is expected to rise to 90.2 in January, up from 88.6 in December.
