On Wednesday, the Euro hit its strongest level of 0.9237 against the British Pound in eight years, reflecting the diverging economic outlook for the Eurozone and the UK and its implications for their respective Central Banks’ policymaking.
Economic data published yesterday showed better than expected Eurozone economic indicators, reaching a level not seen since October 2009. The manufacturing sector has proved particularly strong, with the rate of private sector expansion running at around the best seen over the past six years.
The renewed weakness in the Pound reflects investors’ prospects that the Bank of England will maintain its current low interest rate policy for some time. In contrast, investors are primed for the European Central Bank to signal a moderation in Bond buying from its current monthly pace of €60bn in the coming year as the economy gains momentum.
Meanwhile, China’s Yuan weakened against the US Dollar yesterday, in spite of the Central Bank setting daily guidance at a fresh 11-month high as companies stepped up their Dollar purchases. Cash conditions remain tight, but traders said the stronger Central Bank fixing triggered corporate bargain hunting for Dollars.
The People’s Bank of China set the midpoint at 6.6525 per Dollar, the strongest since Sept. 22, and firmer than the previous fix of 6.6633. The strength in the midpoint reflected broad Dollar weakness after US President Donald Trump suggested that a shutdown of the government was possible and threatened to terminate the North American Free Trade Agreement. Meanwhile, the market is monitoring the annual Central Banking conference in Jackson Hole, Wyoming held from August 24-26 where global Central Bankers may signal their next policy actions.