EUR/GBP: Weak Economic Fundamentals Pull Down the Euro

Weak Euro Zone economic fundamentals caused the decline of the Euro in the previous European trading exchanges, while the Great British pound gained on speculations that the UK economy would avoid recession in the third quarter of this year. With the debt crisis hampering the region’s economic growth, the single currency is expected to trade lower than the Sterling in today’s European trades.

Manufacturing activity in the Euro Zone’s two largest economies weakened in October. According to a report by Markit, German manufacturers pointed to a sharp and accelerated decrease in new orders intakes during October, thereby extending the current period to decline to 16 months. France’s private sector company likewise remained weak, with manufacturers recording a particularly steep drop in new work, primarily reflective of domestic weakness but also affected by the fastest fall in export sales since May 2009, Markit also said.

In the services sector, German service providers indicated the slowest fall in new work since June. As to France’s services sector, Jack Kennedy, Senior Economist at Markit said that business sentiment is likely to weaken as uncertainty drags and investment decisions are delayed accordingly. Also seen to weigh on the shared currency is the weak German Ifo Business Climate data that dropped to the lowest level in more than 2 1/2 years. For some, Germany is likely to contract in the fourth quarter as global and Euro area demand for its exports weakened. Meanwhile, the Pound is seen to incline as demand for safer assets is likely to increase due to increased demand for the Pound. Thus, a short position for the EUR/GBP pair is recommended in today‚Äôs European trades.

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