EUR/GBP holds steady as Eurozone, UK PMI data disappoint

• EUR/GBP holds steady as Eurozone and UK activity slows.
• Eurozone services sector drags overall activity despite a rebound in manufacturing.
• UK PMI data also weakened, reinforcing signs of a broader slowdown in activity

EUR/GBP trades around 0.8650 on Tuesday, holding steady on the day as investors digest a series of weaker-than-expected activity releases in both the Eurozone and the United Kingdom (UK), pointing to a clear slowdown in growth.

In the Eurozone, the preliminary HCOB Composite Purchasing Managers Index (PMI) fell to 50.5 in March from 51.9 in February, below market expectations. The decline is mainly driven by a sharp slowdown in the services sector, with the index dropping to 50.1. Meanwhile, the manufacturing sector shows signs of improvement, rising to 51.4 and indicating a partial recovery in industrial activity.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that the data is raising stagflation concerns, as the war in the Middle East drives a sharp increase in energy prices and disrupts supply chains. Supplier delivery times are lengthening significantly, while firms’ costs are rising at their fastest pace in more than three years.

In the United Kingdom, the trend is similar. The S&P Global Composite PMI declined to 51 in March from 53.7 previously, weighed down by a slowdown in both services and manufacturing activity. The drop is particularly pronounced in the services sector, which fell to 51.2 from 53.9, highlighting a significant loss of demand momentum.

According to TD Securities analysts, this deterioration comes in an environment of intensifying cost pressures, notably due to higher energy prices and ongoing supply disruptions. They also expect UK inflation to remain steady at 3% YoY in February, before potentially rising in the coming months as the energy shock increasingly feeds through into the data.

Market focus now shifts to speeches from European Central Bank (ECB) officials later in the day, as well as UK inflation data due on Wednesday, which could provide further guidance on the policy outlook and drive the next move in EUR/GBP.