Pound V euro: GBP exchange rate rises as construction sector recovers
THE pound has advanced against the euro today, with April’s construction PMI erasing the negative effects of Tuesday’s disappointing manufacturing PMI. After the latest exchange rate rise, £1 is worth around €1.136.
This is a step above opening levels but below the current weekly high of €1.140.
Construction sector growth during April was better-than-expected, with the PMI reading showing a rise from 47 points to 52.5 above the forecast 50.5 point reading.
This result means the sector is expanding, which is represented by any reading above 50.
Reflecting on the construction sector’s performance, IHS Markit Associate Director Tim Moore said a rebound in construction activity was "pretty well inevitable".
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He said: “House building led the way, with growth in April among the strongest seen over the past two-and-a-half years.
“However, the picture was less positive in other areas of construction, with commercial building and civil engineering work rising only marginally.”
A more upbeat assessment came from Capital Economics.
He said: “[The] rebound in [the] construction PMI suggests that the sector has started to make up for time lost to the atrocious weather.
House building led the way, with growth in April among the strongest seen over the past two-and-a-half years
“A contraction in the sector was behind the Q1 GDP growth slowdown, [so] this bodes well for Q2.”
Over in the Eurozone, the euro has been damaged by a series of negative manufacturing and GDP data releases.
The stats have shown a slowdown in finalised Eurozone manufacturing levels, while preliminary GDP growth estimates have also fallen.
IHS Markit Chief Business Economist Chris Williamson, however, remained cautiously optimistic about the state of Eurozone manufacturing.
He said: “The manufacturing sector saw growth weaken further at the start of the second quarter, but let’s not lose sight of the fact that the overall pace of expansion remains encouragingly solid.”
The Bank of England explains the exchange rate
After the dust settles from today’s UK construction data release, the week’s last and most significant PMI data release will come out tomorrow.
The services sector reading is predicted to show growth during April, from 51.7 points to 53.5.
Activity in the services sector contributes the most to UK economic growth, so a forecast-matching PMI rise could trigger a GBP/EUR exchange rate rally.
The next major Eurozone data will also be released tomorrow, consisting of inflation rate estimates for April.
The euro may fall in value when the data comes out, as core annual inflation levels are tipped to fall, while base annual levels are forecast to remain static at 1.3 per cent.
Lacklustre inflation will do nothing to bring a European Central Bank (ECB) interest rate hike any closer, so the euro might drop on trader disappointment.
