EUR Strength Remains the Dominant Theme on Global Currency Markets

It would appear currency markets have ignored the good news out of the UK economy this morning that shows the UK consumer is more confident than since April 2010.

UK Consumer Confidence Index has increased by five points this month to -16.

This is the best outcome since April 2010.

A significant reading for long-term British pound valuation as the UK consumer is a key engine of the UK economy.

Compare this to yesterday's consumer confidence reading from the Eurozone where confidence actually fell.

So while the UK economy continues to look relatively better placed than that of the Eurozone the Pound / Euro exchange rate continues to underperform.

Why? We believe it is all down to the central banks.

Bank of England and European Central Bank decide on policy

Currency markets remain fearful that the Bank of England will soon announce fresh measures to prop up the UK economy.

Good in the long term, but the problem with an increase in the money supply is that it hits the British Pound.

Jeremy Cook at WorldFirst says:

"Sterling came in for a bit of a beating yesterday and apart from AUD and SEK, which fell on dovish central bank comments and a miss on GDP respectively, GBP was the worst G10 performer.

"We estimate that this as a result of increased fears that the MPC and Mark Carney are going to cap rates in the UK at 0.5% for as long as 3 years as part of the Bank’s forward guidance plan. Combined with their inability to rule out the use of further QE, it’s not hard to see why sterling was sold heavily."

The Euro is the best performing currency of the year

So while sterling chugs along, and despite the poor performance of the Eurozone economy, the Euro continues to shine:

"Despite some poor European data this morning the euro has stayed relatively stable and is now the best performing G10 currency on the year.

"Retail sales from Germany and consumer spending in France fell dramatically in June (down 1.5% and 0.8% respectively) suggesting that doubts over the strength of the Eurozone recovery cannot be overlooked. Q3 is still young but initial suggestions are that the quarter will be another negative one for the Eurozone as a whole."

We suggest that the reason for Euro strength rests squarely with the largest economy in the Eurozone - Germany.

Until meaningful weakness is seen there the Euro will remain strong.