Better than forcasted PMI data brightens view of UK economy as investors await ECB
04/Sep/2012 • Currency Updates•
Sterling rose to its highest level in nearly 2 weeks yesterday after stronger than forecast manufacturing PMI data prompted market players to take a slightly brighter view of the UK economy. A PMI survey came in at 49.5 in August outstripping a forecast of 46, although this still remained below the level that divides contraction from expansion.
In other news, retail sales recorded their second worst month of the year in August with the Olympic games failing to lift activity in the UK’s shops. Like-for-like retail sales sank by 0.4% last month compared to the same time in 2011. We now await the Bank of England’s meeting on Thursday, although policy-makers are expected to keep interest rates and QE totals unchanged.
Eurozone manufacturing PMI data painted a gloomy picture, but strategists said sterling would struggle to rally much further against the euro in the run up to the ECB policy meeting on Thursday – where Draghi is widely expected to announce plans to tackle the eurozone debt crisis and curb Spanish and Italian borrowing costs.
Moody’s moved the EU’s triple-A credit rating onto a negative outlook last night, based on similar downgrades to key constituent members, as eurozone leaders continue to battle over measures to resolve the euro area’s sovereign debt crisis. Moody’s said it places the EU on a negative outlook after doing the same to UK, Netherlands, France and Germany, who pay in 45 per cent of the bloc’s budget. This all came after news that Draghi claimed that it would not breach EU law if the ECB bought member state bonds.
In other news Spain’s bank rescue fund last night approved a capital injection into embattled lender Bankia. The bailout from the Fund for Orderly Bank Restructuring will go ahead following approval from the Bank of Spain and government. Spain may also have to bail out Andalucia, which became the latest region to request emergency funding yesterday, asking the state for a loan of one billion euros.
Little news out out of the US after Labour day yesterday. A weaker dollar has boosted oil prices even as a resumption of refinery operations in the Gulf of Mexico in the aftermath of Hurricane Isaac eased concerns over supply. The dollar is weaker across the board as hopes that the ECB will play a more crucial role in resolving the continents debt crisis have helped support the euro against the dollar.