Thursday 22 March 2018

Sterling breaks 92-pence barrier against euro

Janet Yellen and Mario Draghi will both speak at Jackson Hole
Janet Yellen and Mario Draghi will both speak at Jackson Hole
Colm Kelpie

Colm Kelpie

Sterling has reached its lowest level against the Euro in eight years if last year's flash crash is excluded.

The pound ticked above 92 pence yesterday against the single currency, propped up by strong flash purchasing managers' indices from Germany and France, with both countries registering strong private sector growth.

It is the weakest level for the pound since early 2009 - if last year's flash crash is excluded, according to AIB chief economist Oliver Mangan.

"The euro has been drifting higher day after day," he said. "A concern is that we were hoping that it would hold at 91/92 pence, but it's gone through that.

"You've got to go back to early 2009 to see those levels, when it was 94 to 95p, so the fact that it's gone above 92 is significant from that point of view.

"The next levels it could go to is where it reached in the depths of the recession."

Investors are awaiting speeches from Fed Chair Janet Yellen and European Central Bank boss Mario Draghi at Jackson Hole tomorrow, although neither is expected to announce new policy messages.

Mr Mangan said traders should have priced in the fact that there will be little in the way of market moving news from the gathering of central bankers in the US, whereas the position papers from the UK and further Brexit uncertainty is unnerving the markets. "It shouldn't be news to markets," said Mr Mangan.

"For once I'd be surprised if anything came out of Jackson Hole that moved markets to any great extent.

"There's a bit of nervousness about the UK's approach to the negotiations. There's a bit of a wish list there that's not realistic. If you add that into the weak UK economic background, and then good data from the eurozone, then that's what's fuelling the weakness in sterling."

Specialist bank Investec Ireland was also expecting little in the way of market-moving announcements from Jackson Hole.

In a client note yesterday Investec said: "It was a story last week that a 'source' indicated that ECB President, Mario Draghi will not deliver any fresh monetary policy information at the event and will hold off until autumn that also leads us to believe that he will do exactly that. I fear the phrase 'damp squib' may hound financial headlines next Monday morning."

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