GBP/EUR at highest level in nearly two months

GBP/EUR at highest level in nearly two months

The US February PMI data releases were weaker than we expected with the services-sector index at 53.9 from 55.6 previously while the manufacturing index declined to 54.3 from 55.0.

The dollar dipped lower following the data, but equities maintained a strong tone. The Dow Jones Industrial Average closed higher for the eight-successive session and all three main US indices closed at record highs for the second day in a row.

The government-borrowing requirement declined to £49.3 billion in the first 10 months of 2016/17 from £62.9 billion in the same period last year. According to our analysis, the data was distorted by changes to methodology and the government also received a boost from a higher payment from the Bank of England.

In testimony to the Treasury Select Committee, Bank of England Governor Carney refused to provide any forward guidance on policy while Chief Economist Haldane considered that there were downside risks to consumer spending.

GBP/USD found support on approach to 1.2400 and rallied to the 1.2470 area during US trading while GBP/EUR increased sharply to highs of around 1.1850 and the strongest level for close to two months.