- Eurozone growth weakest in 19 months
- German and EU Markit Services PMI slump
- UK Services PMI returns to expansion following EU referendum
- Pound to Euro exchange rates edge closer to 1.20
Eurozone showing signs of contraction
It’s a phenomenon that many did not predict following the UK’s vote to leave the EU. And whilst it has been one of the hottest summers on record, coupled with the Olympic games in Rio and the cheaper Pound, consumer spending was the first set of economic data to show post-Brexit hope for the UK.
The Bank of England’s decision to cut interest rates in July was off the back of a string of poor PMI data, which highlighted that the UK was showing clear signs of economic contraction within its manufacturing and construction sectors. However, since then the UK appears to be going from strength to strength which has provided Sterling with support against most of its major counterparts.
It was widely expected that the result of the UK’s Referendum on EU membership would impact the Eurozone further down the line, and we have seen in the last week that problems within the Eurozone have begun much sooner than anticipated.
This morning’s Markit Services PMI for both Germany and the Eurozone captures business conditions such as sales and employment, which could be showing signs of a struggling economy following the UK’s decision to leave the EU. In contrast, we have seen positive numbers in the UK’s Markit Service PMI, soaring to record levels of growth.
ECB to provide further stimulus?
Last week inflationary figures for the Eurozone showed concerns within an economy that has historically struggled to boost its inflation. Balancing the economies of 28 countries is a difficult challenge for the ECB. With limited options but to add further Quantitative Easing or face negative interest rates, Mario Draghi may be weighing up his options ahead of Thursday’s interest rate decision.
I am therefore edging towards the idea that further stimulus from the ECB could be on the table. We could therefore see GBPEUR exchange rates move into 1.20 territory.
If you are looking to make an upcoming currency transfer, I am of the view that further Sterling strength is on the horizon. Pay particular attention to Thursday’s ECB interest rate decision, Mario Draghi may have to act again to boost the Eurozone’s stalling inflation.
