Euro at 89p as UK hike unlikely

The euro was trading over 89p against sterling as expectations widened that the Bank of England won’t raise UK interest rates anytime soon.

Evidence of the strengthing eurozone economy also helped support the euro which has now gained 14% against sterling in just over a year since the UK voted for Brexit.

Factories across the world powered into July, providing evidence that economic momentum has carried through into the second half. Growth in the eurozone remained buoyant, British manufacturing recovered in July from a seven-month low and Chinese factory activity unexpectedly expanded.

“The world economy was doing quite well in the second quarter and nothing has changed in July.

“The overall picture is pretty healthy,” said Andrew Kenningham at Capital Economics.

The output of Irish factories grew steadily in July, though slipping from June’s two-year high pace, and companies remained confident about the outlook.

The Investec Purchasing Managers’ index slipped back to 54.6 in July but remained well above the 50 mark separating growth from contraction. The survey recorded a slowdown in growth rates for orders and employment in the sector.

However, levels of outstanding business rose for the third consecutive month while suppliers’ delivery times lengthened to the greatest extent in over six years as vendors struggled to meet another substantial monthly increase in purchasing activity. Some 49% of respondents forecast a rise in output in the coming year compared with 9% anticipating a decline, with respondents expecting higher new orders from domestic and export clients.

The flurry of excitement about a Bank of England rate hike has also cooled. Three out of eight policy makers voted to tighten policy in June, and governor Mark Carney and chief economist Andy Haldane said shortly afterward they may consider a rate increase soon. Prospects changed when inflation cooled and the economy slowed more than the bank was expecting in the first half of the year.

Investors are less convinced than they were a few weeks ago that the Bank of England will raise its benchmark rate before the end of 2017. Economists expect the bank’s benchmark rate to stay at a record-low 0.25% when it meets tomorrow.

Additional reporting Reuters and Bloomberg