Sterling close to 7-year high versus euro, as Eurozone weakens again

British sterling has touched a peak of 1.3811 versus the euro today.

by Brian Miller

British sterling has touched a peak of 1.3811 versus the euro today, literally just a fraction of a cent below its strongest since December 7th 2007, or 7 years and 3 months. This is because a range of Eurozone economic data has disappointed today, including French unemployment hitting an all-time high, and German factory orders slumping in January.

Euro stays on the back foot, as French joblessness climbs, while German factories make less

The pound to euro exchange rate remains high today, first because French unemployment climbed +0.1% in the last 3 months of 2014 to +10.4%, according to statistics body ILO. This is the highest jobless rate since comparable statistics began in 1998, and so clearly augurs ill for France’s economy and job market, thereby weakening the euro.

What’s more, the euro also stayed low today, as orders in Germany’s factories shrank –3.4% in January, according to the official Deutsche Bundesbank, far more than the –1.0% looked for. Thomas Harjes, senior European economist at Barclays Plc in Frankfurt, notes that “Manufacturing activity in Germany appears to remain rather subdued in contrast to the surge in domestic retail and service-sector activity.” Given that manufacturing makes up for a large chunk of Europe’s largest economy, this has also hurt the common currency.

Euro may stay weak, as de Guindos hints at 3rd Greek bailout, while ECB to elaborate QE

What’s more, looking to the immediate future, sterling may stay close to 7-year highs versus the euro. First, this is because Spain’s finance minister Luis de Guindos told a press conference in Barcelona yesterday that the Eurozone is planning a third bailout for Greece. Mr. de Guindos said "We have given ourselves these four months to, one, see what the real situation is, to see how Greece has met conditions and to try and establish what happens next (...) which is fundamentally a third rescue.”

In addition, the pound could keep its advantage versus the euro, because the European Central Bank is expected to elaborate its €1.1 trillion emergency monetary stimulus scheme today, technically called quantitative easing, or QE. This may weaken the euro, because electronically printing money in such vast quantities dramatically drives down the value of the euro. Robin Brooks, chief currency strategist at Goldman Sachs Group Inc, for instance says that “The combination of deposit rates negative and QE is a very potent one, so it’s very euro negative.”

Pound equals strongest versus euro in 7 years, 3 months, on UK hiring

Sterling has equaled its strongest versus the euro in 7 years and 3 months today.

by Dave Pewes

Sterling has equaled its strongest versus the euro in 7 years and 3 months today, or since December 7th 2007, at 1.3816. The pound has risen, because the UK’s enormous services sector hired at the second fastest pace on record in February, while fears of a Greek exit from the Eurozone have hit their highest in 2 years.

Sterling rises, as UK services hiring accelerates, though growth eases

Sterling has equalled its 7-year high versus the euro today, as the UK’s gigantic services sector hired new workers at the second fastest pace on record last month, according to economics body Markit. Markit’s measure of UK services hiring hit 57.1 in February, far above the 50.0 line that divides growth from contraction, and second only to last July’s all-time high. This lifted sterling, because it indicates that British services firms expect to be busier, pointing to faster economic growth in the UK.

Chris Williamson, chief economist at Markit, said that “The combination of relatively robust economic growth, the improving labour market and signs that wage growth will pick up in coming months suggests the Bank of England will come under increasing pressure to tighten policy later this year.”

However, in spite of this, UK services output in fact increased less quickly in February, according to Markit. UK services output hit just 56.7 last month, well into growth territory, yet below January’s 57.2 figure, as well as the 57.5 consensus forecast among economists. So this may take the shine off sterling a little.

Euro weakens, as fears of Greece exit from euro hit 2-year high

Moreover, the pound also touched 1.3816 today, because concerns that Greece will exit the Eurozone have reached a 2-year high, according to a new poll of investors by economics group Sentix. Sentix’s newest poll of 900 individuals and institutional investors found that there was a 37.1% chance that Greece will abandon the euro, far higher than last month’s 22.5% figure, and the most since March 2013.

Sebastian Wanke, a senior analyst at Sentix, noted that "The new aid programme for the country does not seem to be convincing, rather a Grexit is now bound to be a constant topic among investors for the months to come.” This is therefore helping to lift sterling to new heights versus the euro.

Sterling drops from 7-year high, as German economy booms

The UK pound has slid –0.59% versus the euro today to just 1.3735.

by Sam Hewitt

The UK pound has slid –0.59% versus the euro today to just 1.3735, more than half a cent below yesterday’s 7-year high year.

This is chiefly because Germany’s economy is showing signs of positively booming, with retail sales flying. Meanwhile, Britain’s forthcoming general election in May is weighing on the UK economy.

Euro climbs, as German retail sales rocket

Sterling has weakened today, first because sales in Germany’s shops flew +5.3% in January year-on-year, according to official body Statistisches Bundesamt Deutschland, far exceeding +2.7% forecasts.

This was the quickest rise since January 2008. and comes as little surprise given the inflation-busting wage hikes that German workers have been enjoying. Recently for instance, Germany’s largest union IG Metall negotiated a +3.4% pay rise for its members, at a time when inflation is falling.

Christian Schulz, senior economist at Berenberg Bank notes that "Private consumption looks set to be a major growth driver in 2015” in Germany. Hence, the rising euro today.

Pound falls, as election uncertainty weighs on UK construction firms

Meanwhile, sterling remains on the back foot today, because it seems that election uncertainty is keeping UK construction firms from hiring and investing, in spite of faster growth in February.

UK construction expanded 60.1 last month, according to economics body Markit’s measure of growth, faster than 59.0 forecasts, and a 4-month. With Markit, a figure above 50.0 points to expansion, while anything below means contraction. This suggests that UK construction is reviving at the start of 2015, and as Markit economist Tim Moore notes, “growth picked up further from the soft patch seen at the end of 2014.”

However, the pound failed to benefit from UK construction’s renewed growth, because there are signs that builders are holding back, ahead of the UK’s May general election. For example, Markit’s Tim Moore also added that “some construction companies noted that the uncertain general election outcome could prove a temporary bump in the road for new work."

Moreover, UK construction accounts for just 6% of Britain’s economic output, a very small percentage, which also explains why sterling remains lower today.

Pound hits 7-year high, but may have peaked, as Eurozone recovers

The pound to euro exchange rate has touched 1.3803 today, its strongest since December 7th 2007.

 by Peter Lavelle

The pound to euro exchange rate has touched 1.3803 today, its strongest since December 7th 2007, or 7 years and 3 months. This is chiefly because UK manufacturing output hit a 7-month high in February, while Greek finance minister Yanis Varoufaki continues to imply the risk of Greece exiting the Eurozone.

However, in spite of this, sterling may have now peaked versus the euro, as both Eurozone deflation and joblessness fell recently, while the UK housing market underperformed last month.

Pound rises, as UK factories accelerate, while Varoufaki defies austerity

Sterling hit 1.3803 today, first because the UK manufacturing sector’s Purchasing Manager’s Index (PMI) hit 54.1 last month, according to economics group Markit. This was well above both the 50.0 line that divides growth from contraction, the 53.4 consensus forecast, and also constitutes a 7-month high. It suggests that the UK’s factories are resurgent in early 2015, thereby strengthening sterling.

At the same time, the pound has climbed versus the euro, because Greek finance minister Yanis Varoufaki  told Athens radio station Parapolitika 90.1 today that "If they [the Troika of Greece’s financers] ask me to continue with the work of austerity I won’t do it.” This tells us that it’s still possible that Greece will exit the common currency, should the Eurozone ask too much of Greece, and explains the euro’s fall.

Sterling may weaken, as Eurozone deflation eases, while UK mortgage approvals disappoint

However, 1.3803 may wind up being sterling’s peak versus the euro, at least in the immediate future. This is because, first, Eurozone deflation eased to –0.3% last month, according to official statistics body Eurostat, beating predictions of a –0.5% drop. This suggests that prices aren’t falling so rapidly in the common currency zone as financial markets expect.

Second, sterling may also have peaked versus the euro, because Eurozone unemployment unexpectedly fell –0.2% in January, to 11.2%, the least since April 2012. This indicates that Europe’s job market is slowly gaining traction, and that, as Bill Adams, senior international economist for PNC Financial Services Group notes, “the latest labor and price data for the Eurozone look less awful.” This may support the euro, therefore.

Last of all, sterling may fall thanks to UK weakness in the near future too, because Britain’s lenders approved just 60,786k new mortgages in January, according to the Office for National Statistics, more than -200 less than forecast. As George Buckley of Deutsche Bank puts it today, this indicates that "Housing remains sluggish” in the UK, and this may stop sterling from scaling new heights, at least for now.