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GBP EUR Exchange Rate Retreats from Weekly High as Construction PMI Disappoints

January 3, 2018 - Written by

The Pound Euro (GBP EUR) exchange rate tumbled from a one-week high this morning as investors reacted to the UK’s latest PMI figures.

Pound (GBP) Tumbles as Construction PMI Misses Expectations

Sterling sentiment slipped earlier this morning as investors were disappointed by the release of the UK’s latest PMI figures.

Following on from yesterday’s dip in the Manufacturing PMI, the release of the UK’s latest Construction PMI prompted further disappointment this morning.

According to figures compiled and published by IHS Markit activity in the UK’s building sector slowed in December, with the construction index slipping from 53.1 to 52.2 against a more modest expected decline to 52.8.

The dip was largely driven by a continued slowdown in commercial building projects, with firms increasingly reluctant to make large investments in the UK given the uncertainty of Brexit and its potential economic impact on business.

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said;

‘It appears that the continued fall in commercial activity was testament to Brexit-related uncertainty on the horizon and the sector’s fear about the direction of the UK economy as clients still hesitated to spend on bigger projects.’

Helping to offset this drop in commercial activity was another strong contribution from residential construction, which helped to fuel employment in the sector and led job creation to strike a two-year high.

However analysts are pessimistic on the possibility of the robust house building continuing into 2018, with the majority of respondents to the survey, predicting a pretty gloomy year ahead for Britain’s construction sector.

Tim Moore, Associate Director at IHS Markit, said;

‘Exactly 37% of the survey panel forecast a rise in construction activity over the course of 2018, while around 11% anticipate a reduction. As a result, the balance of UK construction companies expecting growth in the year ahead remains among the weakest recorded by the survey since mid-2013.’

Euro’s (EUR) Ticks Higher as Germany Unemployment Hits Record Low

At the same time the Euro was bolstered during the European session today as Germany published its latest employment figures.

According to data released by the Federal Labour Agency the jobless rate in Germany held at 5.5% in December after November’s figures were revised down from 5.6%.

This was the sixth consecutive month that unemployment fell and prompted the jobless rate to fall to its lowest levels since reunification.

However the figures were undermined slightly by the accompanying wage figures which revealed that wage growth in Germany continues to remain subdued despite the economy nearing full employment and greatly constricting the talent pool, although analysts are confident that this trend will reverse in 2018.

Jens Kramer, an economist at NordLB in Hanover, said;

‘It’s something of a miracle that wage growth was so moderate after we effectively had full employment for two years in Germany. We should eventually see pressure for higher wages this year.’

GBP EUR Forecast: UK Services PMI to Buck Trend and Rise in December?

Looking ahead the GBP EUR exchange rate may be able to recoup some of today’s losses on Thursday with the publication of the UK’s latest Services PMI, with economists forecasting that the index will have climbed from 53.8 to 54.1 at the end of the year.

However given that activity in both the Manufacturing and Construction sectors slowed last month there are likely to be some doubt over whether the service sector will have suffered a similar fate.

Given the sector also accounts for over 80% of the UK’s economic growth the PMI is also likely to have an even larger impact on Sterling.

Meanwhile the Eurozone will release its own services PMI tomorrow morning, which will likely bolster the appeal of the Euro if the figure confirm that private sector activity climbed as expected in December.

Current Interbank Exchange Rates

At the time of writing the GBP EUR exchange rate was trending around 1.1270 and the EUR GBP exchange rate was trending around 0.8875.

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