GBP/EUR: Will UK Service Sector PMI Drag Pound Lower?
  • Pound (GBP) rises ahead of a quiet day on the calendar
  • UK manufacturing PMI was 46.5 in June
  • Euro (EUR) rose despite manufacturing PMI falling to 43.4
  • ECB still expected to hike rates in July

The Pound Euro (GBP/EUR) exchange rate is rising, snapping a two-day losing run. The pair fell -0.08% in the previous session, settling on Monday at €1.1627 and trading in a range between €1.1618 – €1.1657. At 05:35 UTC, GBP/EUR trades +0.10% at €1.1639.

The pound slipped in the previous session after the factory downturn in the UK deepened in June despite input costs falling. The S&P Global/CIPS Manufacturing Purchasing Managers Index (PMI) fell to 46.5 in June, down from 47.1 in May This marked one of the weakest readings since the financial crisis in 2008/9. However, it was up marginally from the preliminary reading of 46.2.

This was the 11th straight month a PMI was below the 50 level, which separates expansion from contraction amid weak domestic demand and export conditions.

Delving deeper into the numbers, the input costs paid by factories or materials and energy fell by the most since February 2016. The BoE will be watching this indicator closely as it decides whether to hike rates again to fight inflation which remains one of the highest levels among advanced economies.

There is no high-impacting UK economic data due to be released today instead, sentiment is likely to be the driving force behind the pound.

The euro traded relatively flat in the previous session as investors weighed up the latest eurozone manufacturing activity data. The S&P Global/CIPS Manufacturing Purchasing Managers Index (PMI) fell to 43.4 in June, down from 44.8, marking an eight-month low amid subdued demand.

Germany led the contraction in manufacturing activity as the PMI fell to 40.6 in June, down from 43.2 in May as both output and new orders fell. The data doesn’t bode well for economic growth in Q2.

Still, the data is unlikely to change the ECB’s course of hiking interest rates by 25 basis points at the July meeting.

Looking ahead, the economic calendar is quiet, with just Spanish unemployment and German trade data to move the dial.