Euro/sterling slipped 0.3% to 83.59 pence – its weakest since August, 2022
Sterling dropped against the dollar on Monday but hit a new two-year high versus the euro as business activity figures pointed to diverging economic cycles in the British and euro zone economies.
The pound slid 0.2% to $1.3298, hovering below a more than two-year high it hit against the dollar on Friday.
British businesses reported a slowdown in growth this month, as per a survey on Monday that also showed waning price pressures, potentially encouraging the Bank of England to consider lowering rates again.
The preliminary estimate of the UK S&P Global Composite PMI declined to 52.9 in September, below economists’ forecast of 53.5 but still well above the 50 level that separates growth from contraction.
Sterling, however, gained ground against the euro. Euro/sterling slipped 0.3% to 83.59 pence – its weakest since August, 2022.
A similar survey showed euro zone PMIs declined to 48.9 this month from August’s 51.0, with Germany’s decline deepening and France returning to contraction following a boost in August due to the Olympic Games.
Market pricing showed traders are betting on 44 basis points more of rate cuts from the ECB by the end of the year, and 40 basis points of easing from the BoE.
The European Central Bank has reduced rates twice this year, while the Bank of England has lowered rates just once. The central bank last week kept rates at 5.0%, saying it would be careful about future cuts. Signs of economic resilience and sticky service sector prices have aided expectations that the Bank of England need not be aggressive in monetary policy easing compared to other major central banks.
Over the last two years, no G10 economy has seen its data outperform expectations as much as the UK and together with high real rates the currency remains in a sweet spot, FX strategists at Deustche Bank said in a note.
British finance minister Rachel Reeves said there would be no return to austerity or widespread cuts, promising long-term growth despite previous warnings of a tough budget to fix the foundations of the economy.
