Pound Surges Ahead Against Euro despite Experiencing Contraction in the Construction Industry

Pound, the major currency of United Kingdom has finally recovered from its weakest level in last 15 months against Euro, the shared currency of the Euro region. Political turmoil in Italy and Spain pressured the Government bonds of these countries and thereby the relative appeal of Sterling increased.

Incidentally, not only against Euro, but, Pound increased against most of its major counterparts. According to the Currency Strategist of Bank of Tokyo – Mitsubishi Ltd., Lee Hardman, after the heavy selling of last week, Pound is finally stabilizing. Lee added that there are many bad news already in price; still the weakening trend is not completely gone either.

Pound is currently priced at 86.22 pence per Euro, after surging by 0.8%. Incidentally, on 1st February, it went down to 87.17 pence per Euro, thereby reaching the weakest level since 31st October, 2011. Sterling declined by 0.7% last week against the greenback; however, today it went ahead by 0.3% and is currently priced at $1.5738.

So far, in this year, Pound has declined by 3.9%, the biggest decline after Yen among the 10 developed market currencies. Among the other major currencies, USD declined by 0.4% and Euro went ahead by 2.8%.

The 10-year yields of Spain increased and got to 5.42% and the rate on similar maturity Italian bonds is at 4.47% currently. Incidentally, a report published in the El Pais newspaper states that Rajoy accepted illegal payments for a total time period of 11 years. Apart from all these, UK construction industry output data also came out showing contraction in the last month. However, despite of this negative report, Sterling did not experience any fall.

The UK Construction Index of the Markit Economics and the Chartered Institute of Purchasing and Supply was at 48.7 on last month, with no change from December. However, economists forecasted that the same will increase to 49.2. Incidentally, any reading below the 50 mark denotes contraction in the industry.

Gavin Friend, who works as the foreign currency exchange strategist of National Australia Bank Ltd., Sterling already had a big fall and currently, it is expected to take a break and slow down the decrease rate a little bit. However, Gavin added that Sterling may experience a further fall in future, because, if compared, the UK numbers just don’t stand against the data of Germany.