The fall in the May number was one of the largest monthly declines seen on record, only surpassed by that seen in the depths of the global liquidity crunch seen back in November 2008. The rebound to 48.6 means that nearly two thirds of the precipitous May decline was reversed in the June data. The underlying components suggested export demand remained in negative territory for the third consecutive month although by a smaller margin than the prior two months.
The muted reaction of the currency reflects the fact that the market has already discounted further quantitative easing form the Bank of England at this week’s meeting. It’s also the case that, with the ECB likely to offer some concessions on policy this week, we are still in a QE arms race of which the currency winners and losers are becoming less defined as central banks gain even more monetary weaponry. For its part, EUR/GBP wants to break below the 0.8000 level, and has tried to do so on three occasions over the past couple of months, but it’s proving to be a tough sell and the longer-term charts tend to show why this is the case, with the same level proving to be strong resistance for the pair back in the first half of 2008. Given the weaker economy and prospect of further QE, there’s a case for saying that the safety/diversification premium afforded to sterling by the euro’s troubles has a limit against which the pound is pushing.