Sterling shrugged off disappointing UK economic data yesterday in the way of manufacturing data which came in negative, from an expected positive number, as GBP/EUR hit new multi year highs. We saw over one and a half cent gained in the pounds favour against its European counterpart as investors dumped the single currency and bought dollars, pushing GBP/EUR higher, although some gains have been lost in early morning UK trade. The downside of this move in EUR/USD has been in cable as sterling lost around 2 cents vs the greenback. We have now seen the lowest rate printed in GBP/USD since July 2013 as the currency pair fell below the $1.49 handle, although cable has dragged back a cent in its favour this morning.
The euro extended its losses across the board, hitting a fresh 12-year low versus the dollar, plunging under the $1.05 handle. During the Asian session, the euro fell to $1.0492 for the first time since February 2003. So far this week, the euro has lost more than 500 pips. Toward the late Asian trade EUR/USD was 0.24% lower at $1.0520. While the euro has lost more than 35% since May 2014, plunging from nearly $1.40 to where it now sits, the US dollar index, on the other hand, has rallied over 40% from its lows of 70.69 seen in October 2012 to current levels above 100. Against sterling we have seen the euro give up around 19% since last May, trading around 1.19 last summer to hit 1.42 levels yesterday. Asia has seen traders do what they do best, which is bid up the USD and sell EURs. But it has to be said that the move lower in EUR/USD is becoming quite ridiculous and the rate of change has only seen conditions like this once before and that was post-Lehman brothers in 2008. There is an absolute buyers strike going on in EUR/USD, EUR/JPY and EUR/GBP and it takes a brave soul to counter-trend this move. The downward spiral on the euro is likely to continue due to numerous factors. In particular, next week’s FOMC meeting, with some heavy briefing from Fed officials, could well see the language change with respect to the potential timing of US rate rises. The ECB’s decision to purchase negative yielding European bonds was an unexpected development, and this has certainly helped accelerate the decline. Also the prospect of a Greek exit continues to rise day by day. EUR/USD is still extending its downtrend on intraday charts, as a huge sell-off still persists and support is nowhere in sight.
The US Dollar continued to rally which saw the USD index touch the psychological level of 100.000 for the first time since 2003. The move saw the EUR/USD briefly break below the key 1.0500 level in Asian trade although a small bounce back up in the euros favour has seen the currency pair trade back over the $1.06 handle. Elsewhere, Credit Agricole views that with USD demand fuelling due to mid-year Fed rate hike expectations, and today’s US retail sales projected to support improving economic conditions, the USD rally is far from over. “The USD has remained in demand on the back of firm expectations of the Fed considering higher interest rates as soon as mid-year. Looking ahead, today’s retail sales report will be in focus, which our economists expect to confirm further improving conditions. Any indication of strengthening domestic demand conditions would be taken as an indication of further stabilising price developments to the benefit of Fed rate expectations and the USD.” According to the French Bank. “As such we believe that it is too early to expect the greenback’s appreciation trend to come to an end”.