The euro lost ground against the pound on Monday despite the release of better-than-anticipated Italian industrial production data for July. The Nord Stream 1 (Russian gas pipeline) remains cut off, impacting manufacturing activity in Europe. The rebound in the UK’s economic growth in July, following a contraction in June, also enabled the pound to gain ground against the euro dollar. Overall, the EUR/GBP pair declined from a high of 0.8722 to a low of 0.8660 in the past 24 hours.
According to the ONS, the UK’s economy grew by 0.20% m-o-m in July, following a GDP contraction of 0.60% in the prior month, but missed the 0.30% increase anticipated by economists. Notably, the UK’s GDP remained flat in the three months to July, compared with the prior three months.
The increase in the GDP was led by the services sector. In particular, services expanded by 0.40% in July, following a decline of 0.50% in June. Under the services sector, information and communication rose by 1.50%.
Consumer-facing services posted a growth of 0.60% in July, following flat growth in June. The construction sector dropped 0.80% in July, compared with a contraction of 1.4% in June. Economists had anticipated the UK’s construction sector to expand by 0.40% for the reported period. The reported figure reflects the second successive decline in monthly construction output following seven months of expansion in a row.
The repair and maintenance sub-sector fell by 2.6% and paved the way for the contraction in July. The UK trade deficit narrowed to £7.8 billion in July, from £11.40 billion in June. The reported figure was the smallest trade deficit since last December.
Exports grew by 4.20% to £61.05 billion as goods sales rose by 7.20% against the backdrop of a 7.90% growth in the EU and a 6.40% increase in non-EU countries. Exports of services grew by 0.60%. During the same period, imports declined by 1.60% to £68.84 billion as goods purchases fell by 2.3%. On the other hand, imports of services inched up 0.70%.
The ONS also stated that the UK’s industrial production fell by 0.30% m-o-m in July, following a 0.90% drop in the prior month, and disappointed economists who were expecting a 0.40% growth. At the end of July, the UK’s production output stood at 1.30% below pre-pandemic February 2020.
The decline was led by a 3.40% decrease in electricity and gas and a 2.10% drop in water supply and sewerage. On the contrary, mining and quarrying posted a growth of 3.50%. Electric power generation and distribution fell by 4.40%.
Production output for the three months to July grew by 0.60%, compared with the three months to April. The UK’s manufacturing production inched up 0.1% m-o-m in July, following a contraction of 1.6% in June, but missed forecasts for 0.30% growth.
The Italian National Institute of Statistics stated that the country’s industrial production expanded 0.40% m-o-m in July, following a contraction of 2% in June. Economists did not anticipate any change in industrial production in the reported month.
Italy’s industrial production fell by 1.6% in the past three months, compared with the earlier three months. On a year-on-year basis, industrial production fell by 1.40% in July 2022.
The gas cut-off by Russia and mixed economic data from the UK are expected to keep the EUR/GBP pair range-bound with a slight bearish bias in the short term.
Technically, the EUR/GBP pair is declining after facing resistance at 0.8705. The next support is anticipated only near 0.8620. Additionally, the currency pair is trading below its 50-day moving average while the stochastics indicator is in the bearish zone. Therefore, we are anticipating the currency pair to remain in a downtrend in the days ahead.
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