• Pound (GBP) drops after weak PMI data
  • Inflation is expected to ease quickly
  • Euro (EUR) rises despite weak PMI data
  • Service sector inflation remains strong

The Pound Euro (GBP/EUR) exchange rate is falling for a second straight day. The pair fell -0.17% in the previous session, settling on Wednesday at €1.1715 and trading in a range between €1.1673 – €1.1778. At 08:35 UTC, GBP/EUR trades -0.07% at €1.1706.

The pound fell yesterday and is extending the selloff today after UK economic data fueled recession fears. The S&P Global Purchasing Managers Index showed that the economy could be facing its steepest economic downturn since the financial crisis.

The services PMI fell to 48.7 in August, down from 51.5 in July and below the 50.3 forecasts as consumers come under pressure from high interest rates and high prices. Meanwhile, the manufacturing PMI dropped to 42.5 from 45.3 in July, below the 45-level forecast. The composite PMI, which is considered a good gauge for business activity, fell to 47.9, down from 50.8 , raising concerns that the economy could contract in the current quarter.

The PMI data suggests that inflation could moderate relatively quickly in the coming months. However, the fight against inflation also brings with it a high risk of recession. As a result, the BoE could be near peak rates, which is pulling GBP lower.

Today there is no high impact on UK economic data. Sentiment is likely to drive the pound.

The euro rose yesterday despite gloomy PMI data, which painted a worrisome growth picture for the region.

The services PMI fell below 50, into contraction for the first time this year and the composite PMI dropped to 47 in August, down from 48.6 in July.

The data suggests that the risks of a recession are growing., However, the data also showed that services inflation remained persistent and wage pressure remain a concern suggesting that the ECB’s hiking cycle may not be over just yet, which is lifting the euro.