GBP EUR Drops with Lower German Unemployment

GBP EUR Inches Higher on Flat German Inflation

The GBP EUR exchange rate was flat on Wednesday after some mid-level data for the British and European economies. Manufacturing PMI figures were lower in the UK for August but ahead of analysts’ expectations. German manufacturing showed a larger drop, while retail sales were also poor in the country with a -0.3% reading despite hopes of a positive 3.7%.

The GBP to EUR is testing the recent lows at 1.1650 and could find this level to be supported.

UK manufacturing activity slower, but beats expectation

UK manufacturing sector activity slowed slightly in August as momentum in the sector was hit by supply chain issues and raw material shortages, IHS Markit said on Wednesday.

The UK manufacturing purchasing managers’ index decreased slightly to 60.3 points in August from 60.4 in July but was slightly ahead of the preliminary estimate of 60.1.

Rob Dobson, director at IHS Markit, said: “Severe disruptions to supply chains and raw material shortages eroded the growth momentum of UK manufacturing in August.”

“A wide range of factors contributed to the disruption, including port capacity issues, international shipping delays, the re-imposition of Covid restrictions at some key points in global supply networks, and ongoing issues post-Brexit. With all of these factors likely to persist in the coming months”.

The manufacturing sector is still well ahead of the 50 level, which marks the difference between expansion and contraction. The UK economy is less reliant on the manufacturing industry as the services-based economy makes up the large majority.

German retail sales plunge and manufacturing disappoints

German retail sales dropped by far more than expected in July after two months of solid gains, data showed on Wednesday, in a sign that consumers in Europe’s largest economy might be slowing in the third quarter.

The Federal Statistics Office said retail sales dropped -5.1% on the month after a revised jump of 4.5% in June and 4.6% in May. The July reading missed a Reuters forecast for a fall of 0.9%.

Analysts now fear that the overall support for the economy from household spending could be less strong in the third quarter than many had been suggesting.

German manufacturers also struggled to meet strong demand in August as supply shortages for raw materials and components continued to hold back production and push up prices.

IHS Markit’s final Purchasing Managers’ Index (PMI) for manufacturing, dropped to 62.6 from 65.9 in July in a sector that accounts for 20% of the economy.

That was the lowest number in six months but was still comfortably above the 50 level.

The British pound versus the euro has pulled back recently from above the 1.18 level as traders feared the pound had seen the best of its reopening bounce. The euro has been supported by hopes of a German recovery, and some recent talk of tapering by the ECB was largely ignored by traders as being unlikely in the near-term.