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Author Ben Leonard
The British Pound has slumped to an eight-year low against the euro as Brexit talks continued over the week. This has lowered the likelihood of an interest hike from the Bank of England, which came as a relief for many.
The Pound fell 0.45% against the Euro to €1.0954, a low of almost eight years. The last time the Pound was this low against the Euro was in October 2009, when the UK was just emerging from one of the worst recessions in British history.
Rises in the Euro
The rises in the Euro have largely been caused by strong performances from the European industry. The manufacturing purchasing managers’ index (PMI) has come back strongly, reaching well above the 50-point level indicator and hitting a new high of 58.1 in August.
The news of the Pound falling has contrasted with a lot of current news, including reports that inflation has been outpacing wages in recent months and that the GDP forecasts have been revised down.
The Head of FX strategy at RBC Capital Markets warned that there could be worst to come for the Pound as Brexit talks continue to flounder. Cole cautioned that Euro parity was “within the bounds of possibility,” but added that he is not expecting it to fall to that level.
This comes in the midst of the Government is in Brexit negotiations, adding to fears that there could be an increased period of uncertainty for the British economy. These worries have also spread to the City, which could potentially hamper investment.
Concerns about the Brexit process, along with the rise of the Euro, has dramatically pushed the trade-weighted Sterling down. The Pound has reached its lowest levels since the start of November last year, according to the Bank of England’s daily figures.
On the contrary, however, many European markets are showing strong growth, according to many major analysts.
Craig Erlam, a senior market analyst at Oanda, said:
“Manufacturing and services PMIs from the euro zone, Germany and France were all very strong and well above the level that separates growth from contraction, suggesting that the recovery is continuing to gain traction.”
Over the past year, the Euro has gone from strength to strength as the Eurozone economy has increased rapidly. Many traders who have bought Euros at the beginning of the year saw it increase by more than 7% against the pound and more than 12% against the dollar.
The European Central Bank
Unfortunately for the UK government, this growth in the Euro was accompanied by a statement from Mario Draghi, the president of the European Central Bank.
In his statement, Draghi defended the euro zone’s monetary policies and warned that the ECB could soon begin tapering off its €2 trillion asset purchase programme. Instead, they would soon begin raising interest rates.
The ECB may soon find the pressure to raise the interest rates if there are signs of a cyclical recovery for the economy. However, many economists have predicted that this would further strengthen the single currency.
The pound now buys around €1.08.