Euro Hits 19-Month Low Versus Sterling as UK Data Surprises to Upside

  on April 18 2012 7:37 AM
File photograph shows an employee walking over a mosaic depicting pound sterling symbols on the floor of the front hall of the Bank of England in London
An employee is seen walking over a mosaic of pound sterling symbols set in the floor of the front hall of the Bank of England, in London in this March 25, 2008 file photograph. REUTERS

The euro (EUR) plummeted to a 19-month low against the British pound (GBP) on Wednesday, as the UK economic data surprised to the upside lending support to the Sterling, while the single currency continues to be under stress amid renewed concerns over the sovereign debt crisis in the eurozone.

EUR/GBP fell sharply to hit 0.8186 during European trading session, its lowest level since August 2010, after the release of better-than-expected UK unemployment data. The official data showed that jobless claims in the UK rose less-than-expected in March and jobless rate decreasing from the highest levels since 1995, reached in February.

The Office of National Statistics said that the claimant count increased by 3,600 in the month, against the expectations of an increase by 7,000. The UK jobless rate fell to 8.3 percent from 8.4 percent in February.

Besides, the Bank of England’s (BoE) April meeting minutes showed that only one of the nine-member Monetary Policy Committee (MPC) voted in favor of further quantitative easing (QE) by the central bank. Recent improvement in the UK economic data has lessened the expectations of further stimulus by the BoE.

UK economy has been showing signs of resilience bucking the trend in many other European countries, as the Purchasing Managers' Index (PMI) data for March showed diverging trend between the UK and euroarea, with manufacturing and services activity in the UK faring better than the 17-nation euroarea. Analysts believe that UK economy is on the path to post a positive gross domestic product (GDP) growth in the first quarter this year, after contracting by 0.3 percent in the fourth quarter last year.

On the other hand, the EUR continues to be under downward pressure amid faltering euroarea economic growth and ongoing concerns over debt crisis. Auction of two and 10-year Spanish government bonds is scheduled on Thursday, which is considered to be crucial as the country struggles to cut its budget deficit in the wake of deepening recession. Spain also suffers from highest unemployment rate in the region at 23.6 percent.

“The latest crop of monthly indicators for Spain paints a picture of a deepening recession that will only increase the problems the country faces,” said a note from Societe Generale Cross Asset Research.

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