Weak Eurozone PMI And Consumer Confidence Data Sends GBP EUR Exchange Rate Higher

Published: Friday, 21 September 2012 09:00 BST - Written by Minesh Chaudhari

STORY LINK Weak Eurozone PMI And Consumer Confidence Data Sends GBP EUR Exchange Rate Higher

Newspaper headlines continue to obsess about the ongoing EU debt crisis; meanwhile the evidence from the eurozone is mounting and it’s hard to draw any conclusion other than that the region’s real economy is riding for a fall.

Yesterday morning saw the release of August’s edition of the closely-watched Markit Flash Purchasing Managers’ Output Index, which revealed that composite activity levels in Europe’s combined economies had contracted to their lowest level for over three years. The drop to 45.9 showed that activity in the region’s combined manufacturing and services sector has shrunk by its largest amount since June 2009. Analysts have interpreted the figures as an indication that the eurozone’s economy will contract by a worrying 0.6% in Q3. If these estimates are accurate, then it means that mainland Europe’s economy will be cooling at an even more rapid pace than its British counterpart.

Yesterday’s afternoon session provided further grim European data, this time in the form of a weaker than anticipated eurozone consumer confidence survey, which printed at -25.9 versus expectations of a -24.0 showing.

It appears that the medicine from the bottle marked ‘Austerity’, which the ECB/EU/IMF ‘Troika’ has been so freely administering in recent times is failing to alleviate the eurozone’s debt headache. But worse than that, it is causing severe pain for participants in Europe’s real economy. Yesterday’s data may prompt eurozone policymakers to change tack and follow through on their recent ‘go for growth’ rhetoric.

Highlights for today include the latest round of UK Public Sector Borrowing figures – almost guaranteed to make grim reading for investors holding Sterling – and August’s Canadian CPI Inflation numbers. If the Canadian data reveals that annualised price rises are creeping back up towards 2.0%, then market babble regarding a near-term interest rate hike by the Bank of Canada may pick up momentum, providing support for the Canadian Dollar.

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