Britain’s EU dispute and nerves ahead of vital UK GDP data ensured investors heavily extended sterling’s January slump during trading hours. With sterling bears gathering in numbers, this pushed the British currency close to one-year lows against the euro, and to its weakest level since August 2012 against the US dollar.
However, investors will also be well aware that should GDP figures land above markets’ expectations, eliminating the triple-dip threat, traders will rush to cancel their short positions, or negative bets against the UK currency. Still, the euro is likely to have its lofty position further reinforced by business sentiment data that are expected to bolster optimism about a German economic rebound.
The euro climbed to new 10-month highs against the US dollar after Europe’s latest PMI surveys supported European Central Bank hopes that the region’s economy is on the road to recovery.
Sterling
Rising debate about Britain’s potentially hazardous EU referendum added to jitters before reports that experts predict will show the UK economy contracted in the fourth quarter, and is heading towards a triple-dip recession for the first time on record. These fears cut sterling wide open in currency markets again, with the British currency crashing to 10-month lows on a trade-weighted basis, and close to its lowest in over a year against the euro.
US dollar
A sudden drop in US weekly jobless claims shook the defensive US dollar, pushing the greenback to new 10-month lows against its eurozone counterpart as investors added more risk to their portfolios. This also lifted US shares briefly to match pre-financial crisis levels. However, the US currency did register five-month highs against the under-fire British pound and cable will no doubt endure further volatility as markets ready themselves for the UK’s fourth quarter GDP results.
Euro
The euro is closing in on 11-month highs against the US dollar after Europe’s latest PMI surveys bolstered hopes of a eurozone economic recovery while analysts expect data to show business confidence in the German economy is gathering steam. PMI surveys covering the region’s services and manufacturing activity in January rose above forecasts, and services growth in the German economy jumped to a 19-month high. The data underlined European Central Bank confidence that the economy is on the right path to a recovery, and will assist leaders in finally pinning down the area’s Government debt troubles.