Sterling and the Euro have both lost ground versus the Dollar in today’s session, with both the UK and Eurozone hit by negative economic news.
GBP/USD, which had been trading around 1.25 early in the session, dropped to 1.244 after it was confirmed that Thomas Cook, the UK’s largest travel firm, had officially ceased trading, in the process leaving 150,000 customers stranded outside the UK and up to 21,000 employees without a job. Thomas Cook has long been under financial duress and the government refused the bail out the private travel company.
The Euro, which had been relatively stable in the wake of the ECB’s policy meeting on 12th September, fell 0.3% versus the Dollar and European stocks were down about 1% after the release this morning of another poor set of Eurozone PMI data. The composite Purchasing Managers Index fell to a weaker-than-expected 6-year low low of 50.4 in September from an already weak 51.9 in August. The manufacturing PMI sagged to 45.6 and there is increasing evidence that this weakness is feeding through to the until recently robust service sector where the PMI fell from 53.5 to 52.0. Eurozone GDP growth halved in Q2 to only 0.2% qoq and the risk is that growth slowed further in Q3. The PMI data were particularly weak in Germany, the Eurozone’s largest economy. The composite PMI fell from 51.7 to 49.1, the lowest reading since October 2012 and the first reading below the 50 threshold (indicating contracting economic activity) since April 2013. German GDP contracted 0.1% qoq in Q2 and there is now a real possibility that it contracted again in Q3 which would imply that Germany’s economy was formally in recession.
The Eurozone is facing a perfect storm of slowing global trade, weaker Chinese growth and demand, Brexit-related uncertainty and pressure on the important auto-sector partly due to changes in environmental regulations. The ECB’s recent monetary policy easing may buy the Eurozone a bit of time but are unlikely to be the solution to more deep-seated challenges.
