GBP/EUR: Pound Heads Higher As EU To Mull Over Brexit Extension
  • Pound (GBP) rose after government borrowing rose less than expected
  • UK service sector PMI is forecast to slip to 51
  • Euro (EUR) fell yesterday in quiet trade
  • Eurozone composite PMI to contract further

The Pound Euro (GBP/EUR) exchange rate is rising for a second straight day. The pair rose +0.25% in the previous session, settling on Tuesday at €1.1735 and trading in a range between €1.1700 – €1.1747. At 05:35 UTC, GBP/EUR trades +0.05% at €1.1741.

The pound pushed higher yesterday after UK government borrowing rose at a slower pace than expected in July. According to the Office of National Statistics, Public Sector Net Borrowing reached £4.3 billion in July, up from £3.4 billion in July 2022 but below the £5 billion expected.

Following the data Chancellor Jeremy Hunt is under mounting pressure from Conservative MPs to cut taxes. However, given that this would be an inflationary play, the Chancellor is unlikely to make such as move until inflation is under control.

Looking ahead, attention now turns to UK business activity data for July, which is expected to show that the manufacturing sector contracted at a deeper pace, falling to 45 from 45.1 in June. Meanwhile, the services PMI is expected to ease to 51 from 51.5, where the level 50 separates expansion from contraction.

Weaker-than-expected data could raise concerns over the health of the UK economy and fuel worries that the Bank of England could raise interest rates too far, tipping the UK in recession.

The euro fell against the pound and the US dollar yesterday amid a quiet day for economic data. That changes today with the release of eurozone business activity data.

In a similar picture to the UK, the eurozone manufacturing sector is expected to contract at a faster pace in August, with the PMI falling to 42.6 from 42.7.

The service sector is expected to stall, with the PMI dropping to 50.5, down from 50.9 in June. The composite PMI, which is considered a good gauge for business, is expected to contract at 48.5.

In addition to PMI data, eurozone consumer confidence is also due to be released and is expected to show a slight improvement to -14.3 up from -15.1.