FX Outlook | UK PMI Data Weighs on Pound as Eurozone Services Hold Up

The British pound 
slipped on Tuesday morning after flash PMI surveys showed a sharper-than-expected slowdown in UK business activity. The figures revealed weakness in both manufacturing and services, leaving the composite index well below forecasts. In contrast, the euro area delivered steadier numbers, with services activity surprising to the upside and keeping the bloc’s composite reading in expansion territory.

This contrast has reinforced sterling’s fragile position, already weighed down by fiscal worries and a cautious Bank of England.

UK PMIs fell short across the board:

Manufacturing remains in contraction and services, the UK’s dominant sector, softened more than forecast. Together, these readings highlight the headwinds facing the UK economy as fiscal pressures mount ahead of November’s Autumn Budget.

In the Eurozone
results were mixed but leaned positive. Manufacturing weakened further, particularly in France and Germany, yet services exceeded expectations. The Eurozone Composite PMI reached 51.2, with services climbing to 51.4.

Sterling fell on the data, with GBP/USD moving toward 1.3450 support. GBP/EUR held around 1.146 after last week’s dip to 1.1413, but euro demand remained steady. Traders now turn to U.S. catalysts, including Federal Reserve commentary and Friday’s Core PCE inflation report, for the next decisive move.

The weaker UK data increases pressure on the Bank of England. Rates were left unchanged in September, but slower growth, rising borrowing costs and a softer outlook make future cuts more likely. For recent analysis of GBP performance and political factors affecting sterling, see our latest weekly FX outlook. Fiscal risks also weigh heavily as government borrowing continues to overshoot expectations.

The eurozone looks more stable by comparison. Services strength has allowed the ECB to slow its easing cycle, while the BoE appears only halfway through. This policy divergence keeps sterling vulnerable against the euro.

GBP/USD is likely to remain rangebound, with support near 1.3450 and resistance at 1.3550 to 1.3560. Unless Friday’s U.S. inflation data comes in significantly weaker, sterling will struggle to build momentum.

GBP/EUR looks more fragile. Stabilisation near 1.1450 to 1.1460 is possible in the short term, but the bias points lower. A daily close under 1.1410 would expose 1.1380 and 1.1350. Upside attempts are likely capped around 1.1535 to 1.1550 unless Eurozone data weakens.

The PMI releases have sharpened the contrast between a slowing UK economy and a euro area still supported by services. The Bank of England is edging toward further easing while fiscal pressures grow, leaving the pound vulnerable. Unless UK data starts surprising to the upside, GBP/USD and GBP/EUR are likely to remain under pressure through the week. For businesses managing GBP exposure, our comprehensive forward contracts guide explains protection strategies during volatile periods.