The latest data from the manufacturing sector kicked off the week from a EURGBP perspective. With social distancing rules varying across member states the growing worry was that production levels across Europe’s largest factories would suffer due the lack of human resource being permitted to work on site. However, it seems that production levels have continued it’s steady climb back to normality, edging ever closer to the output readings we saw in 2019’s respective release.
A lot of the recovery we have seen across Europe’s major sector has been attributed to the extra monetary stimulus programs laid out by the European Central Bank to ensure lending conditions and cash flow protected growth conditions in the short term and so investors might be comforted by yesterday morning’s continued demonstration of stability. There was a real concern among euro holders that the European Central Bank might take advantage of the Euro’s recent show of form to add further monetary stimulus into the mix, thus potentially devaluing the single currency on the international stage. The very fact the ECB refrained from this at their policy gathering could potentially signal added euro strength as it might indicate a clear shift in stance from the monetary policy committee who have been understandably cautious throughout the crisis.
We have arguably already started to see this trend materialise, with EURGBP breaking through the critical 0.92 mark before retracting but only slightly. It will be interesting to see if this level is tested consistently throughout this week with this morning’s potentially pivotal inflation figures from Europe’s major players France and Italy. A clear reason for the ECB to reconsider it’s monetary policy stance would be if prices began to halt once more which would push the need for added currency flow to keep consumers and businesses active in the market space. Though levels in France and Italy only showed marginal gains across various indicators for the month of august, the markets might be comforted when they compare to the heavy contractions seen in the spring and early summer when lockdown measures chocked consumer spending and business confidence the most.
On this basis it seems the more global conditions return to normality, the more the single currency seems to falling in favour of the markets, as opposed to it’s major currency counterparts who continue to struggle amidst the ever changing economic outlook.
It will be interesting to see if these morning’s readings are also reflected in tomorrow’s Consumer Price Index releases from Eurostat. Given this will provide a snapshot into pricing levels across the wider bloc there is an argument to say this could be hold added weight with the markets. As a result, if you are looking to buy euros it may pay to get in touch with your account manager ahead of this set of releases so you can manage your exposure and help you optimise your returns just in case a the markets are surprised.
Brexit talks remain in the spotlight: Why might the pound continue its fall?
Sterling holders might have been comforted by news of the trade agreement reached between Japan and the UK. Not only will the deal add approximately 0.007% to UK GDP but it also represents a clear demonstration of the UK’s ability to negotiate favourable trade deals post Brexit. There has been little market reaction to this so far with trade talks with the European Union still at a deadlock. There has been plenty of speculation in fact that the European Commission is still considering legal action against the UK government after last weeks reports of new legislation being brought to the table. Should this story escalate further in the days and weeks ahead, it could further tie into the growing anxiety around the weakening talks with the EU. Something that historically has tended to weaken Sterling’s value on the international stage.
You could argue this has already been factored in by the markets with last weeks heavy losses inflicted on the pound evidence of investors pre-empting sterling’s fall from grace. It will be interesting to see if these multi week lows are sustained in the long run or if the market re-balances itself with time. As a result, Euro holders looking to buy pounds might want to capitalise on the current cloud looming over the pound at present. Should we see a switch in trend of these talks you could argue these favourable levels might evaporate just as quickly as they appeared.
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