British pound in eight-year low against euro on Eurozone industry surprises

The British pound hit an eight-year low against the pound in early Wednesday trading as a closely followed survey showed stronger than expected performance from European industry.

The manufacturing purchasing managers’ index (PMI) rebounded strongly to reach a reading of 58.1 in August, according to data compiler IHS Markit, well above the 50-point level indicating an expanding sector.

Analysts had expected the indicator, widely used as a barometer of the industry by investors, to fall further after it retreated to a still strong reading of 56.6 in July.

The surprising strength of the index was driven by the powerhouse German industrial sector, which saw accelerating output expansion, despite recent fears from economists that a slowdown might be imminent.

Craig Erlam, a senior market analyst at Oanda, said: “Manufacturing and services PMIs from the eurozone, Germany, and France were all very strong and well above the level that separates growth from contraction, suggesting that the recovery is continuing to gain traction.

“Manufacturing was a particularly strong point in all three cases, despite the fact that the currency moves this year represent a potential headwind for exporters.”

The reading reassured currency traders, who bought the pound at the cheapest euro price since October 2009. Sterling traded at lows of €1.0853 against the euro in morning trading.

The euro has surged over the past year as the recovery in the Eurozone economy has gained pace. Traders who bought the euro at the start of the year have seen it appreciate by more than seven percent against the pound and more than 12 percent against the US dollar.

Traders have bought the euro almost constantly over the course of this year as a string of business-friendly electoral results – including the victory of Emmanuel Macron in the French presidential election – and an economy gaining momentum has led to upward revisions to growth forecasts and increasing confidence in growth-boosting reforms.

Meanwhile, the rise of the euro and concerns around the Brexit process have pushed the trade-weighted sterling index to its lowest level since the start of November last year, according to the Bank of England’s daily figures.