GBP to EUR: What is holding the euro and what is driving the pound sterling today?

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Category: Exchange Rates

Published on Monday, 03 September 2012 14:00

Written by Will Peters

The pound to euro (GBP/EUR) is 0.19 pct in the blue at 1.2638.

Factors driving the GBP:

1) Great manufacturing PMI data released this morning. UK Manufacturing PMI jumped to a four-month high of 49.5 from a downwardly revised 45.2 in July.

2) Indications that we could get some good retail figures later this week. According to Nielsen, supermarket sales climbed 3.5 pct in the four weeks to 18 August from a year ago. It credited the Olympics feel-good effect, as well as the retailers' ongoing use of money-off vouchers and coupons.

Factors holding back the EUR:


1) Crumby manufacturing PMI data. Eurozone Manufacturing PMI output across the 17-country eurozone shrank again in August, Markit's final PMI was 45.1, above July's three-year low of 44.0.

2) The Spanish problem is coming into focus once more. Spain, Greece and Italy have never really disappeared, it's just that investors have been focussing on other issues over the past week.

But, today, Spain is back.

The Spanish government has yet to make available the €18bn “rescue” fund which will provide liquidity to regional governments (which do 40% of public spending) that cannot find financing themselves (at least six out of 17 of them), although the queue of regions needing the money urgently is getting longer.

Southern Andalusia, Spain's most populous region, has today said it needs a €1bn advance in order to pay its bills.

At the same time Catalonia, the second most populous region, has warned that if it does not get rescue money by the end of the month, it will be in serious trouble and must seek a bridging loan.

Catalonia has asked for €5bn from the rescue fund to cover debt-rollovers and deficit spending this year. Regional finance boss Andrea Mas-Colell has also warned it may have to apply yet another round of spending cuts before the end of the year.