EUR/GBP skids below 0.8700 after weak Eurozone PMI data, ECB policy eyed

• EUR/GBP drops below 0.8700 as the ECB is expected to keep interest rates unchanged at 4.5%.
• The preliminary Eurozone PMI for October remains below the expectations and the former readings.
• The UK laborforce witnessed a drawdown for the third period in a row.

The EUR/GBP pair extends correction below the round-level support of 0.8700 after the release of the weaker-than-expected Eurozone preliminary PMI data for October.

The S&P Global and Hamburg Commercial Bank (HCOB) reported that the Manufacturing PMI dropped to 43.0 against September’s reading of 43.4. Investors anticipated a higher reading at 43.7. The Eurozone factory data has been failing to meet the 50.0 threshold for more than a year.

Eurozone Services PMI at 47.8, dropped sharply from the former reading and expectations of 48.7. The economic activities in the shared continent region have faced consequences of higher borrowing costs by the European Central Bank (ECB). The ECB has raised interest rates to 4.5% to bring down inflation to 2% but is expected to pause the rate-tightening spell in its monetary policy meeting scheduled for Thursday.

Analysts at Commerzbank expect that the ECB is likely to revise its economic outlook further downwards. In its September projections, it still assumed that the Euro area economy would avoid a recession. A further increase in the key interest rate is thus becoming increasingly unlikely.

On the United Kingdom front, the Pound Sterling remained in action after the release of partial labor market data. The UK Office for National Statistics (ONS) delayed reporting of the Unemployment Rate, Employment Change, and Claimant Count Change as responses received by the Labour Force Survey (LFS) were inconsistent in comparison with tax data and surveys of employers.

The Unemployment Rate for the June-August period edged down to 4.2% against expectations and the former release of 4.3%. The UK laborforce witnessed a drawdown for the third period in a row. The UK employers shed 82K jobs in three months to August, which was lower than expectations of 198K lay-offs.