- Pound (GBP) is falling for a second day
- UK manufacturing contracted deeply in September
- Euro (EUR) rose vs the pound but tumbled versus the USD
- ECB chief economist Philip Lane is due to speak
The Pound Euro (GBP/EUR) exchange rate is falling for a second straight day. The pair fell -0.08% in the previous session, settling on Monday at €1.1532 and trading in a range between €1.1524 – €1.1559. At 06:35 UTC, GBP/EUR trades -0.08% at €1.1527.
The pound fell in the previous session after data showed that industry output and new orders contracted sharply in September. The gauge for the manufacturing sector’s activity, the manufacturing PMI, reported one of the worst months for 14 years coming in at 44.3 in September. The level 50 separates expansion from contraction and shows that the sector has been in heavy contraction in recent months.
The data also showed that the export business has fallen for the 20th straight month and that employment in the sector also fell for the 12th straight month However there was some good news as the data showed that the cost that manufacturers had to pay for new materials and imports also fell.
The data adds to mounting evidence that the UK could be heading for a recession in the second half of this year.
Today, there is no high-impact UK economic data, which means that the pound will likely be driven by risk sentiment. Given that the market mood is souring, the pound is struggling.
The euro managed to edge higher against the pound yesterday but fell sharply against the US dollar and EUR/USD dropped to a new 2023 low. Data showed that eurozone manufacturing activity remains in a deep downturn as factory orders plummeted and job losses accelerated. The manufacturing PMI fell to 43.4 in September down from 43.5 in August, remaining firmly below the 50 level for the 15th straight month. Germany and Australia are suffering the fastest pace of decline.
Attention now turns to ECB chief economist Philip Lane who is due to speak today and is expected to deliver a speech on key factors in inflation and the ECB’s response. Investors will be looking for clues on the outlook of inflation, the economy, and monetary policy.
Any hints from Philip lane that interest rates could stay higher for longer raising the risk of a prolonged eurozone recession could you in fact pull the euro lower.
