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.”