• Pound (GBP) rises for a third day
  • BoE Andrew Bailey to testify before parliament
  • Euro (EUR) falls amid concerns over the health of the economy
  • Eurozone retail sales due

The Pound Euro (GBP/EUR) exchange rate is rising, extending gains from last week. The pair rose +0.59% in the previous session, settling on Tuesday at €1.11719 and trading in a range between €1.1580 – €1.1710. At 08:35 UTC, GBP/EUR trades +0.02% at €1.1693.

The pound pushed higher in the previous session against the euro but fell sharply against the US dollar after UK business activity data showed that businesses saw the sharpest slowdown in seven months.

The PMI for the British service sector fell to 49.5 in August, down from 51.5 in July, marking a 7-month low. Meanwhile, the composite PMI which also includes very weak manufacturing activity dropped to 48.6 down from 50.8 again the weakest since January.

The data raises concerns over the health of the UK economy and makes a recession more likely. However, it’s also worth noting that inflation remains high in the UK at 6.8%, meaning that the Bank of England remains under pressure to raise interest rates further.

The Bank of England governor Andrew Bailey will appear before the UK Treasury Select Committee, facing questions on how the central bank managed the policy, inflation, and the outlook for the UK economy.

Meanwhile, the euro fell sharply in the previous session amid rising fears of a recession in the second half of the year. The latest PMI data from the region showed that the downturn in the eurozone was deeper than initially thought. the composite PMI, which is considered a good gauge for business activity, dropped to 46.7 in August a level not seen since November 2020. This was also the third month that it remained in contraction.

Attention will now turn to German factory orders, which are expected to fall -4% month on month in July, and eurozone retail sales, which are expected to fall -0.1% on a monthly basis. Weak data will highlight the stuttering eurozone economy and raise questions over how much further the ECB can raise interest rates.