The Pound Sterling to Euro (GBP/EUR) exchange rate softened on Wednesday as UK service sector PMI data came in below forecasts, and Eurozone retail sales and unemployment data beat economist expectations.
The Pound Sterling to Euro exchange rate touched a session low of 1.3702
Sterling weakened against all of its most traded peers as data showed that growth in the UK’s dominant service sector made its biggest slowdown in four years in May. The data raised worries over the strength of the UK economic recovery.
The services purchasing managers index (PMI) compiled by Markit/CIPS tumbled from April’s reading of 59.5 to 56.5 in May. The slowdown was the steepest seen since August 2011.
‘Overall growth in May across all three sectors was the lowest since December and the second-weakest for two years. The surveys point to GDP growing at a quarterly rate of just 0.4% in May, raising doubts about the ability of the economy to rebound convincingly from the weakness seen at the start of the year. The lacklustre growth picture will be a concern to policymakers and effectively kills off the chances of any imminent hiking of interest rates by the Bank of England,’ said Chris Williamson, Chief economist at Markit.
Following the release of the data the Pound tumbled by more than 1 cent against the US Dollar (USD) and fell to a session low of 1.3702 against the Euro.
Eurozone Data Supports Euro (EUR) Exchange Rate
The Euro managed to advance against the Pound and other major peers despite increasing concerns that Greece will default on a €300 million debt repayment to the International Monetary Fund (IMF). No deal has been reached between Athens and its creditors, but economists are hoping that breakthrough will be reached either tonight or before Friday’s deadline.
Retail sales in the Eurozone were shown to have increased by 0.7% on a monthly basis in April and advanced by 2.2% on an annual basis. The report suggests that economic activity across the region is improving after the European Central Bank launched its €1.1 trillion quantitative easing programme.
The Euro then received further support from a report which showed that unemployment across the currency bloc fell to 11.1% in April, a drop from the 11.2% seen in the preceding month. The number of people out of work fell by 130,000 to 17.846 million.
Volatility is likely for the GBP/EUR exchange rate. The currency pair’s movements will now depend on events in Brussels and Greece. If no deal is reached by Friday we can expect the Euro to tumble, however if a last minute deal is reached and accepted by both Greece and its creditors the Euro could soar.
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