Friday 7 February 2020 5:27 pm Moneycorp Talk

What’s happened to GBP/EUR this week?

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Senior Private Client Dealer at moneycorp

Sterling was on the back foot at the beginning of this week, but that wasn’t the whole story…

After a positive end to last week thanks to the Bank of England holding interest rates, sterling was on the back foot at the beginning of this week due to the Prime Minister’s comments about the Brexit negotiations. Reports over the weekend that the PM intends to impose full border checks on imports and that there is “no need for a free trade agreement to involve accepting EU rules,” cost sterling half a cent in early trade and by the afternoon, it was on average 0.9% lower against the major currencies. In response, the EU’s chief negotiator Michel Barnier stated that a “highly ambitious” trade deal is on offer if Britain signs up to rules preventing unfair competition. Overall, the market took the view that the PM would be willing to walk away from the proposal and that the lack of alignment early on in the negotiations could be bad news for sterling. This overshadowed some positive PMIs later in the week. Manufacturing came in at 50, fractionally higher on the month, construction gained four points to 48.4 and the services sector had the best news, coming in a point higher than forecast at 53.9, the strongest reading since September 2018. Despite a “robust and accelerated increase in new orders,” it wasn’t enough to help the pound, which was outshone by commodity-related currencies. 

Across the Eurozone, the manufacturing PMI came in at 47.9 – once again, Greece delivered the best result at 54.4 and Germany struggled to approach the growth zone at45.3. With regard to services, Germany’s PMI was much healthier than manufacturing, coming in at 54.2 and even last placed France made the growth zone at 51.0. The composite measures came in above 50, keeping the euro steady but little moved the euro this week with more dramatic developments elsewhere. Similarly, there was no response to ECB President Christine Lagarde’s speech while accepting the Grand Prix de l’Économie 2019 award from Les Echos. There was nothing new in her speech other than an acknowledgement of the threat to global trade of the coronavirus. At the moment, the market’s focus appears to be on matters elsewhere and will be looking for more significant and positive news from Europe to support the central currency.

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