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Euro exchange rate drops to a two-month low on Services PMI, ECB rate decision, & poor Spanish auction

The Pound to Euro exchange rate has reached a 2-month high today of 1.2091 as PMI results continue to flatter the UK economy. Services PMI marked a 15th consecutive month of growth for March with figures coming in at 55.3, smashing economic forecasts of 53.4. The strength of recent PMI results has helped relieve pressure on the Pound, and stem fears that the UK may have slipped into contraction in the first quarter of 2012, thus sending the country into a technical recession.

Services PMI in the Eurozone continued to falter below the crucial 50.0 level that marks growth from reduction. The figure for March improved from 48.7 in February to 49.2 in March, but market movers have taken the result as a confirmation that the Eurozone fell into recession at the start of 2012.

The Eurozone suffered another significant setback this morning as a Spanish debt auction failed to clear its full content of bonds. Spain set out to sell €3.5 billion of notes but only managed to trade €2.59 billion. Demand was worrying considering the ECB’s cash injection of cheap 3-year loans should have quashed liquidity fears. It appears that Spain’s poor growth prospects were putting off investors. The yield on the Spanish 2020 bonds increased from 4.90% to 5.56% which suggested the €700 billion firewall has been deemed insufficient by some investors. German Factory Orders also came in poorly, -6.1% down on this time last year.

The ECB maintained their 1.0% interest rate, but rhetoric in Mario Draghi’s speech suggested more stormy waters lie ahead. He noted that talk of an exit strategy from central bank stimulus was ‘premature’ and stated the 17-nation bloc remains vulnerable to ‘downside risks’.

The Eurozone looks to be in a sticky situation and the Sterling to Euro exchange rate has benefitted from the single currencies downfalls. A harrowing report from Greece puts the crisis into perspective; one third of the population now live under the poverty line, almost double that of before the sovereign debt crisis took place.