Revived business optimum lifted the pound versus the euro for a second straight session on Wednesday. Meanwhile the euro was under pressure amid growing concerns that Trump is looking to escalate the trade dispute with the European Union.
The pound euro exchange rate closed Wednesday’s session 0.6% higher at €1.1844 after hitting a 7-week high. The pair is holding steady in early trade on Thursday.
Following on from the encouraging labour market report earlier in the week, the latest report from the Confederation of British Industry (CBI) showed that total orders improved to -22 in a January. This was up from -28 in December and ahead of expectations of -25. Whilst the figure is still in negative territory, it is the strongest reading in 5 months. The business optimism component of the report was the strongest in 5 years, despite hard Brexit fears still lingering.
As a result of the upbeat data, pound investors are eased back on expectations that the Bank of England will cut interest rates this month. The market has gone from pricing in a 70% probability of the BoE easing policy next week, to just 50%. As rate cut expectations eased, the pound pushed higher.
Today there is no high impacting UK data to drive the pound. Investors will now look ahead to PMI figures at the end of the week.
Trump & ECB
As one trade dispute eases, Trump looks set to escalate another. The euro extended losses versus the pound as Trump, speaking from Davos, threatened to slap high tariffs on car imports from the EU unless a trade deal is agreed.
The threat of car tariffs from Trump is nothing new, they have been lingering over European manufacturers for some time. However, Trump has repeatedly delayed applying then. Concerns are rising that now that a phase one trade deal is agreed with China, Trump will turn is attention firmly towards the EU.
The slowdown in the EU economy is showing signs of bottoming out, although the German manufacturing sector is still not showing signs of rebounding. A full-blown trade dispute with the US would kick the EU economy whilst it’s down, with potentially dire consequences.
Today investors will turn towards the ECB rate announcement. No change is expected to monetary policy. Investors will be looking towards the start of the strategic review, comments over its scope and duration could inject some volatility in the euro.
| What do these figures mean? |
| When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written: 1 GBP = 1.13990 EUR Here, £1 is equivalent to approximately €1.14. This specifically measures the pound’s worth against the euro. If the euro amount increases in this pairing, it’s positive for the pound. Or, if you were looking at it the other way around: 1 EUR = 0.87271 GBP In this example, €1 is equivalent to approximately £0.87. This measures the euro’s worth versus the British pound. If the sterling number gets larger, it’s good news for the euro. |
