The Euro to Pound exchange rate softened on Tuesday after the UK currency found support from better than forecast Industrial Production data, the single currency meanwhile was softened by disappointing trade data from France and continued concerns over the Eurozone’s economic health.
Monday saw the Pound tumble against all of its peers and decline below the 1.25 level against the Euro. The cause of the sharp drop came from the release of a poll, which showed that support for Scottish Independence increased to overtake the pro-UK side for the first time. As a result, the markets went into panic mode as uncertainty over what currency Scotland would use and how businesses based there will be impacted.
On Tuesday, the Euro gave up some of its gains after data out of France highlighted concerns over the strength of the Eurozone’s second largest economy and the wider region in general.
The trade data released by the Ministere de l’Economie et des Finances showed that France’s trade deficit widened more than forecast in July. The deficit widened to €5.5 billion, worse than the €5 billion expected by economists.
Data released out of the UK then sent the Euro lower against the Pound.
According to the Office for National Statistics (ONS) industrial production increased more than forecast in July, suggesting that momentum in the sector is being sustained in the third quarter of the year.
Industrial production in the UK increased by 0.5% in July, the largest increase recorded in five months and increased by 1.7% on a year on year basis, the 11th consecutive increase recorded. A separate report also showed that manufacturing production in the UK increased by 0.3% month on month and by 2.2% on a yearly basis, both number matched economist expectations.
The Euro to GBP exchange rate is forecast to remain under pressure over the coming weeks as economists speculate that the Pound is likely to show further weakness before the Scottish Independence referendum on September 18.
‘The market was slow to take this seriously, we reacted late and we reacted aggressively. The Pound positioning is still long. The current move still looks more like capitulation than speculation on a yes vote. There is more downside to come,’ said Kit Juckes, global strategist at Societe Generale SA.
UPDATE
The Pound’s brief rally against the Euro stalled on Tuesday, as the markets grew increasingly concerned that Scotland will vote in favour of leaving the United Kingdom. In an attempt to try to win over voters towards the UK the leaders of the Labour, Conservative and Liberal Democrats have all headed north. Concerns as to what currency an independent Scotland will be allowed to use were heightened on Tuesday after Bank of England Governor Mark Carney ruled out a currency union.
The Euro meanwhile found some support after data showed that Industrial Production in France fell less than forecast in July. Production in Spain rose slightly more than forecast but was below forecasts.
Investors will now be turning their attention to Wednesday’s French Industrial production data for further suggestions that the French economy is continuing to weaken. Concerns are building that the Eurozone could slide into recession before the end of the year.
Euro Exchange Rate News:
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