The eurodollar declined against the pound following the release of French and German flash services PMI data that indicates contraction in September. The UK’s flash services PMI data also missed economists’ estimates but reflected an expansion, albeit at a slower rate, of the sector. That enabled the pound to gain ground against the eurodollar. In the past 24 hours, the EUR/GBP pair declined from a high of 0.9210 to a low of 0.9146.
The German GfK consumer sentiment index declined 1.6 points in September (reflects sentiment for October), after falling by 1.7 points in the earlier month. Economists had anticipated improvement to -1. Despite the decline, both economic and income anticipations are improving, while inclination spend has fallen.
The consumer income anticipation index stood at 16.10 points, up 3.3 points from last month. A report published by the German Federal Labor Office did not indicate any increase in unemployment due to COVID-19 infections. Excluding the seasonal increase in unemployment due to the summer break, the number of unemployed has declined slightly.
Commenting on the reading, Rolf Bürkl, GfK consumer expert, said: “Despite rising infection figures and the increasing fear of tighter restrictions caused by the pandemic, the consumer climate has stabilized. The extensive support packages for business and consumers are clearly suitable measures to help Germany emerge from the worst recession since the war.”
Furthermore, the number of part-time workers, which had risen to more than 5 million, declined sharply. Consumers believe that the German economy is precisely on course to rebound after the steep decrease in spring due to coronavirus. For the fifth time in a row, the economic outlook improved. The economic expectations index rose 12.4 points m-o-m to 24.10 points in September. It is the highest reading in two years and 33 points higher than September 2019 reading.
According to IHS Markit, the French flash services PMI (purchasing managers’ index) reading declined to a four-month low of 47.50 in September, from 51.50 in the earlier month, and missed economist’s anticipation for a reading of 52.20. The decline was caused due to enforcement of restrictions related to the COVID-19 pandemic.
Similarly, French flash manufacturing PMI increased to a two-month high of 50.90 in September, from 49.80 in August and slightly greater than the 50.6 reading anticipated by economists.
Furthermore, the French flash manufacturing output index increased to a two-month high of 53 in September, from 52.30 in August. However, the flash composite output index declined to a four-month low reading of 48.50 in September, from 51.60 in August.
As the reading indicates, the service sector activity fell while manufacturing activity increased slightly. The contraction in overall business activity was mainly due to a slight reduction in new work. The demand fell somewhat for the first time in three months. Moving forward, private sector firms were bullish about the forthcoming 12-months.
Data published by IHS Markit indicated that German flash manufacturing PMI increased to a 26-month high of 56.60 in September, from 52.20 in the earlier month. The Consensus estimate called for a reading of 52.0.
On the contrary, flash services PMI declined to a three-month low of 49.10 in September, from 52.50 in the prior month, and missed the market’s expectations for a reading of 53.
Likewise, the flash PMI composite output index declined to a three-month low of 53.70 in September, from 54.40 in August. However, the flash manufacturing output index rose to a 32-month high of 62.20 in September, from 57.70 in the previous month.
The data indicates a robust increase in the country’s business activity, led by a steep rise in manufacturing production. Nevertheless, the overall rate of growth slowed down for the second month in a row due to a slight weakness in the services sector. Workforce figures decreased slightly and at the slowest phase in seven months as businesses were increasingly positive about the future. For the second month in a row, overall backlogs of work increased.
Phil Smith, Associate Director at IHS Markit, said: “With services business activity falling for the first time in three months, the recovery in the tertiary sector has possibly reached a ceiling thanks to ongoing social restrictions and still-high levels of uncertainty in the economy, including around job security. In contrast, manufacturing is still rebounding strongly thanks to in part to improving export demand, with sharply rising levels of output and new orders helping to slow the rate of job losses in the sector.”
The IHS Markit stated that the Eurozone flash manufacturing PMI data increased to a 25-month high of 53.70 in September, from 51.70 in August and surpassed analysts’ Consensus estimate of 51.50.
However, the Eurozone flash services PMI reading fell to a four-month low of 47.60 in September, from 50.50 in August, and missed the reading of 51 anticipated by economists.
Likewise, the flash PMI composite output index hit a 3-month low reading of 50.1 in September, from 51.90 in August. The Eurozone flash manufacturing PMI output index increased to a 31-month high of 56.80 in September, from 55.60 in August.
Across the Eurozone, business activity halted in September, although with conflicting patterns by country and sector. Backlogs of work declined at a mildly slower rate, with encouraging signs in the manufacturing sector and rising weakness in services. Moving forward, the business outlook for the upcoming 12 months recorded the highest level since February.
The IHS Markit also provided data related to economic activity across the English Channel. According to the institution, the UK’s flash manufacturing PMI inched downwards to a two-month low of 54.30 in September, from 55.20 in the earlier month, but in line with economists’ estimates. However, flash services PMI declined to three month low of 55.10 in September, from 58.80 in August and slightly lower than the reading of 57 anticipated by economists.
Furthermore, the flash composite output index fell to three month low of 55.70 in September, from 59.10 in the prior month. Also, the flash manufacturing output index slumped to two month low of 59.30, from 61 in August.
In September, new business volumes across the private sector rose at the slowest rate in three months.
As a whole, September data reflects a reversal in the UK private-sector output, with the rate of growth slowing down from August’s six-year high. Both the manufacturing production and service sectors recorded a slowdown in activity. Among the private sector enterprises, the level of optimism for the forthcoming year fell to the lowest level since May.
Employment figures continued to slide at a steep rate in September, albeit at the slowest pace since March. Moving forward, a higher percentage of the UK’s private sector firms anticipates an increase in business activity in the forthcoming year.
The poor flash services PMI data from France and Germany are expected to keep the EUR/GBP pair range-bound with a slightly bearish bias.
Technically, the EUR/GBP pair is declining after facing resistance at 0.9210. The next support is anticipated only near 0.9080. Furthermore, the currency pair is trading below its 50-day moving average, while the stochastic oscillator is in the bearish zone. Therefore, we are anticipating the currency pair to remain bearish for the next few days.
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