Sterling edges up, euro nears two-year low

Sterling gained against the euro on Wednesday, buoyed by stronger British business activity compared to the eurozone, while the euro dropped 0.1 per cent to 84.04 pence, close to the two-year low of 83.84 pence reached earlier in July.

Data showed a pick-up in UK business activity this month, driven by the fastest manufacturing growth in two years and the strongest inflow of new orders since April 2023. In contrast, growth in eurozone business activity stalled.

“The divergence in economic fortunes is being reflected by currency markets so far this morning,” said Nick Rees, FX Market Analyst at Monex Europe.

Sterling has been supported by better-than-expected economic data, political stability from the new government, and the Bank of England’s reluctance to cut rates as quickly as some peers, including the European Central Bank, due to persistent inflation concerns.

The BoE is set to meet in August, with markets predicting a 45 per cent chance of a rate cut. Rees noted that Wednesday’s data showed a mixed picture of inflationary pressures, which would likely have little impact on the BoE’s decision.

The pound remained flat against the dollar at $1.29075.

Sterling experienced its most significant decline against the Japanese yen, falling 0.55 per cent to 199.67 yen, having traded above 207 yen earlier this month. The yen has strengthened broadly following likely official intervention in July, increased market volatility leading traders to unwind yen-funded carry trades, and the possibility of a Bank of Japan rate hike next week.