The Purchasing Manager’s Index published yesterday morning showed the biggest fall in the UK’s economic activity since April 2009 and the rate to buy Euros has fallen.
The data from the PMI published by Markit showed a fall to 47.7 and manufacturing and service sectors both showed a big fall.
The figures can directly be attributed to the impact of the EU referendum vote and the Brexit has caused this big drop in activity.
UK business was clearly adopting the wait and see approach and this has been reflected in the data.
Chief economist at Markit Chris Williamson has suggested that the economy could even contract by 0.4% during the third quarter which if this is the case could cause huge problems for Sterling exchange rates in the future.
This negative data could prompt the Bank of England to make changes to monetary policy when their next meeting takes place on 4th August.
BoE governor Mark Carney has already spoken out on a number of times suggesting that the central bank will do what it needs to in order to settle the British economy in the wake of the Brexit vote and if we see a change when the meeting takes place then this could also cause problems for the Pound.
Later this week on Wednesday the UK releases GDP data for the second quarter. The data will include the Brexit period so again any signs of things slowing down could see the Pound fall vs the Euro.
One potential shining light next week for anyone buying Euros is that of the European banking stress tests which are due to take place on 29th July at 9pm.
Suspiciously the data is being published outside of business hours as I think the expectation is for some banks to fail.
A total of 51 banks across Europe will be put under test conditions and my expectation is that the banks in Italy in particular could struggle. They currently owe EUR550bn of which almost half of that is due to French banks. Therefore, any problems could see a reversal of fortune for the Euro.
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