The Pound to Euro exchange rate has improved by almost half a cent this morning as Eurozone PMI’s disappoint once more and UK Retail Sales rebound from last month’s decline.
German Manufacturing PMI came in at 44.7 for June declining from 45.2 in May.
German Services PMI came in at 50.3 for June declining from 51.8 in May.
Eurozone Manufacturing PMI came in at 44.8 for June declining from 45.1 in May.
Eurozone Services PMI came in at 46.8 in June marking the only improvement from May’s 46.7 figure.
The Composite Eurozone PMI of both Services and Manufacturing remained at 46.0 marking a second consecutive month of weakness for the 17-nation bloc.
Sterling was able to benefit from the Eurozone’s brittle performance and appreciated from a daily low of 1.2358 to a session high of 1.2407 against the Euro.
The Pound received a timely leg-up from a positive release in the form of UK Retail Sales, the figure bounced back from -2.4% to post a positive growth of 1.4%, exceeding analysts’ expectations of a rebound to 1.2%.
With the Manufacturing and Composite Eurozone PMI readings residing at the lowest level since June 2009, the near-term future of the economies in the Eurozone is looking rather bleak. The 50.0 mark separates expansion from contraction, and with all but the German Services posting prints below 50.0 speculation is growing that European Central Bank intervention may be necessary to help rejuvenate the stalling continent’s economy.
Stephen Rieke, economist at BHF Bank argues that a rate cut at the very least is around the corner:
“I’d expect the ECB to act in July at the latest. Which means on the one hand interest rate cuts, of course, combined with a package of measures that the Eurozone finance ministers are preparing. I would expect more than just a rate cut. More non-conventional measures you might say.”
And Howard Archer, chief UK and European economist at IHS Global Insight, predicts a 25 basis point rate cut, citing poor performance and slowing inflation as the cause and justification for the ECB to act:
“The surveys reinforce pressure on the ECB to cut interest rates and we suspect a 25 basis point cut from 1% to 0.75% is very much on the cards for July. The lower price indices evident in the PMI surveys add to the evidence that inflationary pressures are easing in the Eurozone, giving the ECB ample scope to trim interest rates.”
An ECB interest rate cut would have an adverse effect on the Euro in the currency markets but with the currency union performing so poorly in recent times, drastic stimulus may be required to help drag the continent out of recession.
