Pound Sterling Plunges Despite Better PMI As Euro Skips Beyond 1.2300

The British pound started the new year with losses. The GBP/USD pair is currently trading at 1.3570, down 0.30% at the time of compilation.

December encouraged the pound, which rose 2.5% on the back of the falling dollar. There was a lot of speculation around the pound in the last weeks of the year as it was unclear if the UK and the European Union would reach a Brexit agreement before the December 31st deadline.

With strong tensions in the air, there were forecasts that the pound could fall below 1.30 or rise above 1.40, depending on whether the deal is reached. After the historic deal, the pound did not rise above 1.40, but at the same time, the significant downside risk of the pound was eliminated.

The Euro started the New Year in positive territory. The EUR/USD pair is currently trading at 1.2297, up 0.66% on the day.
There were no surprises in the eurozone from the manufacturing PMI for December. The manufacturing sector continues to indicate expansion across the block. Germany led the way with 58.3, well above the neutral 50.

This is followed by the eurozone with 55.2 points. Spain and Italy accelerated in December, while France reaffirmed their initial estimate of 51.1 points.

The fact that all of the bloc’s major economies are in expansion territory is an encouraging sign at a time when the Covid-19 pandemic has significantly reduced economic activity.

Positive UK Manufacturing PMI
The week kicked off with positive news as the UK Manufacturing PMI continues to rise. The PMI was revised upward to 57.5, slightly above the original estimate of 57.3. This value is in the expansion zone and is the highest level of the index since November 2017. Services and construction PMIs follow later this week.

Despite the positive release, sterling sold on Monday in anticipation of (and amid leaks suggesting) British Prime Minister Boris Johnson will announce a stricter national lockdown in England to limit the alarming rate at which the virus continues to spread across the country.