June 23, 2020 / 8:12 AM / 10 days ago

Pound falls to three-month lows versus stronger euro

LONDON (Reuters) - Sterling hit its lowest levels since March against the euro on Tuesday, but cable rose 0.4%, as global risk appetite improved due to positive European economic data and an easing of U.S.-China tensions, lessening demand for the safe U.S. dollar.

FILE PHOTO: UK pound coins plunge into water in this illustration picture, October 26, 2017. REUTERS/Dado Ruvic/Illustration

The euro was bolstered by French business activity rebounding more than expected in June, returning to growth after three months of an unprecedented downturn. It also took a boost from data showing the euro zone downturn eased again this month.

The pound fell to its lowest in three months against the euro, at 90.775 pence per euro, before recovering somewhat to 90.440 at 1503 GMT, down around 0.2% on the day.

“I don’t think we can get sterling much stronger than this against the euro,” said Kit Juckes, head of FX strategy at Societe Generale, who said that euro-sterling is in the process of consolidating about 0.9.

“Over the whole course of the summer, I’d be surprised if I shouldn’t see a 0.9- in front of it,” he added.

Against the dollar - which was weakened by an improvement in global risk appetite after the Washington backtracked on comments that the U.S.-China trade pact was over - the pound was up 0.4% at $1.2520.

UK PMI data was better than expected but did not move the pound, which has been performing as a risk-on risk-off currency recently.

The IHS Markit/CIPS flash composite Purchasing Managers’ Index (PMI), which measures activity in the services sector and manufacturing, jumped to 47.6 in June from 30.0 in May.

This was a record rise that easily exceeded expectations in a Reuters poll for an increase to 41, though its sub-50 level still represents a modest fall in output.

“The PMI data might not be much use to us until we get to the back end of the summer to see where activity can settle, how open we can get our economies and how much back to normal we can get things,” said Societe Generale’s Juckes.

Juckes said the pound continues to trade as a risk-on, risk-off currency, responding to changes in global risk appetite as economies around the world reopen.

Graphic: Pound versus euro - here

Prime Minister Boris Johnson announced further easing of the coronavirus lockdown, allowing pubs to open from July 4.

Four years to the day after Britain voted to leave the European Union, the finance minister set out plans for how the government intends to regulate its financial services sector after Brexit.

Reporting by Elizabeth Howcroft; Editing by Kirsten Donovan, Catherine Evans and Peter Graff

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