EUR/GBP approaches YTD highs, at 0.8753 after soft UK flash PMIs

• The Euro extends gains for the fourth consecutive day, approaching year-to-date highs at 0.8753
• UK PMIs have disappointed, with manufacturing activity contracting and a sharp slowdown in services.
• Eurozone PMIs have been mixed with a strong services performance offsetting an unexpected contraction in manufacturing.

The Euro is drawing some support from the Pound’s weakness on the back of soft UK business activity data. The pair extends gains for the fourth consecutive day and has reached the area between 0.8745 and 0.8753, where the pair peaked in late July and early August.

UK flash PMIs have disappointed investors. The Manufacturing sector’s activity has dropped to its weakest reading since April, at 46.2, against market expectations of a steady 47 reading. Likewise, the Services PMI slowed to 51.9, from 54.2 in August, well below the market consensus of a 52.7 reading.

These figures add pressure on an already weak pound, weighed down by growing concerns about the UK’s public finances. Government borrowing hit five-year highs in August, according to data by National Statistics, and investors are anticipating tax rises in November’s budget that will likely weigh on economic growth.

Eurozone figures, in contrast, have been slightly better, although far from outstanding. Eurozone manufacturing PMI contracted against expectations, but it was offset by a large.-than-expected improvement on Services activity.

German PMI data was in the same vein, with an improvement in services, making up for the deterioration of the manufacturing sector, but the downbeat data from France, which reported significant declines in both sectors, has increased concerns about the region's second-largest economy, and is likely to add some weight to Euro rallies.

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