GBP/EUR Hits One Month Low On Order Disappointment

So much for not breaking ranges. GBP/EUR broke to a new 1-month low yesterday as the manufacturing sector in the UK failed to live up to expectations, causing yet more concern that the slow drag of very poor growth will continue for longer than analysts expect.

Total orders for the manufacturing sector rose to -21 from -23 however this was poor compared to the market estimates and highlighted the on-going issues that manufacturers in the UK have. While we saw a large improvement in export orders, domestic order books are not being refilled nearly as fast enough. We highlighted at the beginning of the quarter that trade and manufacturing data would be the key to understanding currency movements through Q4 and beyond, and so it has proved.

Unfortunately what this data also confirms is that the dream of rebalancing the economy really is quite dead. Although our currency is a lot cheaper than it was at the beginning of the whole economic crisis, the markets that our exports are focused on remain those that aren’t buying their own produce, let alone ours.

The cross was helped lower by euro strength which saw EUR/USD break above the 1.29 level for the first time in 3 weeks. While the PMI data suggested that manufacturing would lead to a near 0.4% fall in European Q4 GDP, this was seen as better than most had been looking for, and pushed the single currency onwards.

We have seen a slight wobble in risk overnight as it has become clear to everyone that a deal on the EU budget is not going to be forthcoming anytime soon. The feeling is that we will see the negotiations drag into 2013 although they must be quick as 2013 is a very political year with elections in Italy in the spring and Germany in the winter. Bear in mind we will see a larger currency reaction from a lack of decision from Monday’s meeting on the Greek debt programme.

German IFO is the main indicator due today although markets should remain fairly quiet given the on-going lack of liquidity courtesy of Thanksgiving.