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Thursday 2 October 2014

Euro slumps to a 21-month low against sterling

Neal Armstrong

Published 03/07/2014 | 02:30

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The EU could seek to impose new charges on the financial sector to help pay for the raft of new supervisors set up since the crash (Photo credit should read PHILIPPE HUGUEN/AFP/GettyImages)
The EU could seek to impose new charges on the financial sector to help pay for the raft of new supervisors set up since the crash (Photo credit PHILIPPE HUGUEN/AFP/GettyImages)

The euro fell to a 21-month low against sterling yesterday, boosting prospects for Irish exporters.

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The pound jumped after a report showed UK construction growth accelerated in June adding to signs of strength in the UK economy.

Sterling also appreciated to the strongest level against the dollar in more than five years as a separate report showed an index of housing activity increased this month. The new data supports the case for the Bank of England to consider raising interest rates this year after Governor Mark Carney has said the time to normalise them is "edging closer."

The European Central Bank lowered interest rates last month to stave off the threat of deflation and meets again today. UK government bonds were little changed.

"We continue to favour euro-sterling lower," said Michael Sneyd, a foreign-exchange strategist at BNP Paribas in London.

"Data divergence between the UK and the euro area has been very supportive of this view. There's already been some pricing for a fourth-quarter rate hike."

The pound appreciated 0.2pc to 79.6 pence per euro yesterday afternoon after reaching 79.51 pence, the strongest level since October 2012. With unemployment at a five-year low, house prices soaring and the British economy headed for the strongest growth of any Group of Seven nation this year, investors are betting the BOE will raise the benchmark rate from the record low, set in 2009, by February. The central bank will announce this month's policy decision next week.

ECB officials, led by president Mario Draghi, will leave monetary policy unchanged after today's meeting in Frankfurt, according to analysts. The ECB unveiled unprecedented stimulus measures at its previous meeting on June 5, including negative deposit rates that tend to weaken a currency.

Markit Economics said its UK construction index, based on a survey of purchasing managers, increased to 62.6 from 60 in May. That's the highest since February and compares with economists' forecast for a decline to 59.8. The index has been above the 50 level that indicates expansion for more than a year.

An index of housing activity increased to 66.6 in June from 62.7 in May, Markit said. That's the highest since the gauge rose to 67.3 in January, which was the strongest reading in more than a decade. Commercial building grew the fastest in five months.

A separate report from the Nationwide Building Society showed home prices in London jumped the most in 27 years in the three months through June.

London house prices surged 7.6pc in the second quarter from the previous three months, more than double the UK average of 2.9pc, the lender said. National prices climbed 1pc in June from May, the 14th month of increases, to an average £188,903, Nationwide said. That took the annual gain to 11.8pc, the fastest year-on-year increase since January 2005.

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