Euro Weekly Update: August 12th 2009
August 12th, 2009
Smaller than expected US job losses sent the euro down. UK economic data were generally good but the pound suffered after the MPC announcement.
Sterling oscillated between €1.18 and €1.17 for the first three days of the week, looking as though it could eventually go even higher. That impression
evaporated on Thursday after the MPC announcement sent the pound sharply lower. It eventually found support on Friday at €1.64 but only because the euro itself was falling against the US dollar.
It was a game of two halves for sterling. For three days it could seemingly do no wrong and during the remaining two days it could do almost nothing right.
From the word go it received help from a succession of upbeat economic data. On Monday the Purchasing Managers’ Index for manufacturing delivered a positive surprise by coming in above the 50-level that separates contraction and growth.
At 50.8 it only just made the cut but it was comfortably ahead of the opposition in Euroland and the United States. After two months above 50 the services sector PMI was less of a surprise. Even so, the point and a half improvement to 53.2 went down well with investors.
Help was also forthcoming from the Halifax house price index, which went up by 1.1% in July, and June’s half per cent increase in industrial production.
That was the good bit. On Thursday there was a serious setback. Investors had been geared up for the Monetary Policy Committee to make some sort of statement about its Asset Purchase Facility, the quantitative easing that has so far seen the Bank of England spent £125 billion on buying bonds.
Investors’ main question had been whether the Bank would go on to spend the £25 billion remaining in its war chest or call a pause to the programme. Most were not mentally prepared for the MPC’s decision to extend the programme to £175 billion. More importantly, they were unnerved by the Bank’s pessimism about the economy.
To read in the Bank’s statement that the recession is “deeper than previously thought” was a bit of a shock.
The Euro zone had less to say for itself on the economic front and the figures were almost all weaker than the UK offerings. Purchasing Managers’ Indices for both main economic sectors were weaker in Euroland than in Britain with manufacturing four and a half points behind at 46.3 and services 7 1/2 points to the rear at 45.7.
Retail sales were -0.2% lower in June, -2.4% down on the year. Among the national data, German industrial production fell by -0.1% in June, the same month in which UK production rose by +0.5%.
Friday’s lucky escape for sterling/euro was the result of an unexpected reaction to US employment figures. The American economy shed fewer jobs in June than investors had been expecting. According to the way things have been happening in the last couple of months that should have been detrimental to the dollar.
In fact the dollar went sharply higher. The euro and the yen were hardest-hit because those two currencies act as the main counterbalance to the US dollar.
After ten days of euphoria the pound has its feet on the ground once again. That does not mean it no longer has a chance of glory but it will probably mean postponing the celebrations. Buyers of the euro should see anything above €1.18 as an opportunity to increase their stock of the currency.
Get the best foreign exchange rates with no bank fees or commission charges using your Moneycorp Privilege Card
Related Posts
- Euro Weekly Update: August 4th 2009
- Euro Weekly Update: July 15th 2009
- Euro Weekly Update: June 24th 2009
