Currency Article : Euro and Pound face a sudden blow; causes panic selling By Heena Naik, Angel One Ltd
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Below the quote on "Currency Article" by Heena Naik- Research Analyst - Currency, Angel One Ltd
Euro and Pound face a sudden blow; causes panic selling
On 23rd Aug’23, both the Euro currency and the Sterling Pound started off the day on a mute note however the currencies made a sudden dive down south in the middle of the trading day. So, what could have caused such a fall that led to panic selling amongst the traders?
With regards to Euro, crucial data sets from the two mega countries of Europe i.e., Germany and France came on a disappointing note. Germany’s Flash Manufacturing and Services PMI data showed that the business activities of the country had suffered the steepest decline for more than three years in Aug’23. Manufacturing output faced a sharp downturn which was then accompanied by a renewed contraction in services activity. Due to this, businesses remained pessimistic towards the outlook as rising interest rates, customer uncertainty and high inflation continued to weigh on demand for goods and services. Notably, the survey also showed an increase in inflationary pressures which was driven by accelerated cost and price increases in the service sector.
Speaking about France, the economy remained mired in a downturn midway through the third quarter with overall activity levels falling solidly. The rate of contraction matched that seen in Jul’23, which was the steepest since Nov’20. Notably, output volumes across the dominant service sector fell for a third month running and at the quickest pace in two-and-a-half years, while manufacturing production extended the decline that has been ongoing since last summer. There was a further slump in demand for French goods and services, with accelerated drops recorded at both manufacturers and service providers.
The above datasets have led to traders firm up their bets that the ECB would pause their rate hike path in the next month’s policy as euro zone business activity contracted much more than expected, pointing to deepening pain for the bloc's stumbling economy.
On the other hand, GBPUSD and GBPINR fell by 0.68 percent and 1 percent respectively all due to the manufacturing and service PMI numbers which contracted sharply thereby denting the sentiments. As per data, Britain’s private sector firms signalled a renewed downturn in business activity in Aug’23 thereby ending a six-month period of expansion. This mostly reflected a faster fall in new orders as sluggish domestic economic conditions and higher borrowing costs led to caution among clients.
Keeping all the factors in mind, the trend of Euro and Sterling Pound is likely to remain bearish until the Jackson Hole meeting is conducted which could give a new direction to the currencies. On the lower side EURINR and GBPINR could move towards 87.40 and 103.20 levels respectively; break of the same could push the currencies further lower. Adding to the woes would be bullish US Dollar Index which could further intensify the fall.
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