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Sterling Vs Euro: Pound Rises As UK Factories Beat Forecasts

Market CommentarySterling Vs Euro: Pound Rises As UK Factories Beat Forecasts
Sterling Vs Euro: Pound Rises As UK Factories Beat Forecasts
Sterling Vs Euro. Image credit: Wpaczocha.

The sterling vs euro interbank exchange rate has risen so far today, from a low of 1.1592 up to 1.1674. This is just -0.87% below the pound's recent 22-month high versus the euro of 1.1774, its strongest since May 14th 2017, achieved last Wednesday 27th March.

Factors that have influenced the value of GBP against the EUR recently include the UK's Brexit talks, UK manufacturing's surprisingly strong performance in March, plus the further slowdown in Eurozone inflation last month too.

If you're thinking of buying a Mediterranean property later this year, or importing goods from the Eurozone for your UK company, this may help you for when you transfer money to Spain or France.

You can keep track of the pound to euro interbank exchange rate on Pure FX's Exchange Rate Updates page, or with our Latest Market Rates Widget.

Let's take a look at the factors that have influenced sterling vs euro recently, and could do so in the foreseeable future.

UK Manufacturing Sector Beats Forecasts in March

The UK manufacturing sector's Purchasing Manager's Index (PMI), a poll of British factory activity, rose to 55.1 in March, according to economics surveyor IHS Markit this morning.

This is a 13-month high, above February's figure of 52.1, plus financial market forecasts of a slowdown to 51.0. A figure above 50.0 points to expanding activity, and the higher the better.

Trends in output, new orders and employment all strengthened in UK factories last month, said IHS Markit. This could contribute to strengthen the UK's economic growth figures in Q1 2019, between January and March.

However, it's important to note that IHS Markit has attributed this rise in the UK's manufacturing output in large part to stockpiling, ahead of Brexit, reports The Guardian newspaper.

Rob Dobson, director at IHS Markit, said about these figures that: "Manufacturers reported a surge of business activity in March as companies stepped-up their preparations for potential Brexit-related disruptions."

As a result, though this rise in UK manufacturing output may strengthen the UK's GDP growth in the short term, as companies stockpile ahead of Brexit, in the longer term, Brexit uncertainty could adversely affect British factories' performance.

These upbeat UK factories data have helped to lift sterling vs euro, at least for now.

Eurozone Inflation Falls Further in March

Meanwhile, Eurozone inflation fell by -0.1% to 1.4% in March, according to official statistics agency Eurostat this morning. This is further below the European Central Bank's (ECB) official target of close-to-but-below 2.0%, says news website Ekathimerini.

Moreover, core inflation, which measures price pressures in the currency bloc excluding imported food and energy factors, fell by -0.2% in March, to just 0.8%. This tells us that the Eurozone's economy is expanding too slowly to generate consistently higher price pressures.

This data lifts the odds that the ECB will keep interest rates in the Eurozone at their all-time low of 0.0% for longer. This is because, when Eurozone inflation is low, there's no need to raise the cost of borrowing, to keep a lid on rising price pressures.

That said, low interest rates also make investing in the common currency bloc less profitable for international investors. This cuts demand for the common currency, in turn lifting the value of sterling vs euro.

Parliament to Hold More "Indicative Votes" on Brexit

Looking ahead, a factor that looks likely to affect the pound to euro interbank exchange rate in the near future is Parliament's next round of "indicative votes" on Brexit, according to Euronews.

This evening at 19.00 GMT, MPs in the House of Commons will again vote on their preferences for the UK's Brexit deal. The options may include staying in the EU's Single Market and Customs Union, holding a second referendum, or even cancelling Article 50 to stay in the EU.

MPs held these "indicative votes" last week, when no option gained a majority. This time, it's hoped that Parliament will clearly vote for a way forward for Brexit. The UK has until April 12th to present its new Brexit plan to the EU, or risk crashing out of Europe.

Financial markets are hopeful that MPs will decide on a course for Brexit today. That said, the uncertainty is also making investors nervous. So this could impact the value of sterling vs euro.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

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