Huge win for Brexit Britain as sterling soars to two-year high vs euro in blow for Germany
Germany’s economic woes have been a feature of recent years, and are largely fuelling by the pressures its massive car industry is under.
Soaraway Sterling was valued at €1.20 against the euro last night for the first time since April 2022 – with separate data suggesting EU powerhouse Germany is heading towards a recession.
Sterling spiked by almost a cent against the single European currency as monthly business survey figures revealed a gulf between the UK and the eurozone.
In a dramatic day of trading, the pound also gained against the dollar, reaching $1.3359, a two-and-a-half-year high. Goldman Sachs are predicting it will reach $1.40 within the next 12 months. As of 7.30am this morning, the pound continued to be valued at €1.20.
In a note to clients yesterday, experts at Deutsche Bank – Germany’s largest lender – said there was still ‘scope for sterling to appreciate’.
They suggested that, over the past two years, the UK has had “the best data in the world”, with the economy consistently outperforming expectations – and the Bank of England being more cautious than other central banks in reducing interest rates.
Deutsche Bank’s experts explained: “This has created a sweet spot for the currency that we expect to continue through to the end of the year and during risk events such as the autumn Budget.”
The euro’s weakness yesterday followed purchasing managers’ index (PMI) figures, which painted a gloomy picture for Germany, the continent’s largest economy, with jobs being cut at the fastest rate since the pandemic, in another blow for the embattled single currency.
In the UK, growth – although lower than expected – still easily outpaced that of its European competitors.
In Germany, September’s PMI – a monthly gauge of private sector activity – fell to 47.2, a seven-month low.
Any reading below 50 indicates a contraction in business activity.
The report suggested the continental economy shrank by 0.2 per cent in the third quarter, following a contraction of 0.1 per cent in the previous period.
If confirmed by official data, this would meet the technical definition of a recession.
Germany has become widely labelled as the “sick man of Europe” in recent years, in stark contrast to its traditional reputation.
Much of its decline is attributed to the shrinking of its once-mighty car industry, grappling with the transition from petrol and diesel to electric vehicles.
China also plays a significant role, with demand for German cars declining, while it floods Europe with cheap cars, harming Germany’s car manufacturers.
Volkswagen, Europe’s biggest car maker, is understood to be considering factory closures in the country for the first time in its 87-year history and may cut up to 30,000 jobs.
Cyrus de la Rubia, chief economist at commercial bank HCOB, told the thisismoney website: “The downturn in the manufacturing sector has deepened again, extinguishing any hope of an early recovery.
“In a sign of resignation, companies have shed staff at a rate not seen since the Covid-19 pandemic in 2020. A technical recession now seems inevitable.”
