EUR,GBP flows: EUR and GBP supported after PMIs

UK and Eurozone composite PMIs both higher in February, with the Eurozone rising more but the UK at a higher level. There is some doubt that the UK numbers give a good guide to growth, especially given the strength of the PMIs in Q4 when GDP fell 0.3%. But the Eurozone numbers tend to be a more consistent indicator. The gap between the two is high by historic standards, but doesn’t usually stay high for long, and it is hard to find a good reason for the current divergence. We would expect some convergence in coming months which should support EUR/GBP gains.

We would therefore be wary of treating the UK number too seriously. However, the rise in both numbers is supportive for the current risk positive market tone, and suggests the recent gains in EUR/JPY and GBP/JPY will hold for now, even though we see the current levels as heavily overvalued from a longer term perspective.