The Pound to Euro exchange rate (GBP/EUR) struck a fresh 8-month high of 1.2001 yesterday; the first time the currency pair had breached the 1.2000 mark since January 17th, as British Manufacturing output comprehensively outperformed Eurozone factory output.
Markit Economics reported that UK Manufacturing continued to grow in September, registering an impressive score of 56.7, which although slightly lower than August’s 6-year high of 57.1, still featured robust figures for Output and New Orders. The latest PMI figure suggests that British Manufacturing activity improved at the fastest quarterly rate for two-and-a-half years in the third quarter.
Rob Dobson of Markit Economics said that the strong results should help to boost UK GDP:
“UK Manufacturing continues to boom. These numbers are encouraging in respect to the balancing of the economy, with goods production likely to provide a major stimulus to economic growth in the third quarter”.
Across the Channel in the currency bloc the story was slightly less encouraging. Eurozone Manufacturing output dipped from August’s 2-year high of 51.4 to register a score of 51.1 as the economic recovery stuttered slightly. Chris Williamson of Markit Economics described the nascent revival as “fragile” and commented that it was “best not to get carried away”, with Eurozone figures still a long way off their British equivalents.
The single currency was also hampered by an unexpected rise in the number of jobless citizens in Germany. The Unemployment Rate in the 17-nation bloc’s leading economy ticked higher from 6.8% to 6.9% as 25,000 people found themselves out of work in September – five times the 5,000 figure that traders had been anticipating. Strangely, the German rise was not representative of the currency bloc as a whole, and the overall Eurozone Unemployment Rate was reported to have declined slightly to 12.0%.
Later on today UK Construction is expected to improve from 59.1 to 59.5, which is likely to lend the Pound some more support, but the most important event on the calendar is likely to be the European Central Bank’s interest rate decision at 12:45.
The ECB is unlikely to reduce its current benchmark rate of 0.50% at this juncture, as recent economic indicators such as PMIs and German IFOs have printed satisfactorily, however it is possible that President Mario Draghi will strike a rather dovish tone in his post-decision press conference. ‘Super Mario’ has expressed concern in recent months that credit growth is shrinking within the currency bloc, and subsequently the prospect of another injection of cheap liquidity, in the form of the Long Term Refinancing Operation (LTRO), has become increasingly likely.
Even if the ECB decides not to act in October, the Pound is liable to challenge the psychologically significant 1.2000 level again this afternoon if Draghi drops any hints that he is considering unleashing another round of non-standard monetary easing measures.
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