Higher eurozone PMI and dovish BoE comments argue for a EURGBP rebound
This morning’s stronger-than-expected eurozone flash PMIs for August re-affirmed that growth momentum in the eurozone is picking-up, albeit gradually. The rise in the eurozone PMI composite to 51.7 from 50.9 largely reflects a pick-up in Germany’s PMIs to 52.0 and 52.4 respectively for the manufacturing and services surveys. While EURUSD was supported modestly by the release, yesterday’s reaffirmation of the Fed’s QE tapering bias is likely to dominate and continue to weigh on EURUSD. We do, however, see scope for EURGBP gains and maintain a bullish quant trade recommendation with a target of 0.8710 (stop loss at 0.8500). This view was reinforced by comments from BoE MPC member Weale, who said further QE may be needed under certain circumstances. QE risk clearly remains intact as the BoE’s forward guidance has so far failed to prevent a tightening in financial conditions.
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BNP Paribas