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Monthly Wrap: EUR – Euro strengthens on politics, but gains limited by economic concerns

currency-newsMonthly Wrap: EUR – Euro strengthens on politics, but gains limited by economic concerns
Key Takeaways:
 
  • Italy-EU tensions lighten and Euro strengthens as Italy budget finally agreed
  • Eurozone economic slowdown keeps pressure on shared currency into 2019
  • EUR Monthly highs: £0.91, $1.15, AU$1.66, C$1.57, NZ$1.72
  • EUR Monthly lows: £0.89, $1.12, AU$1.56, C$1.50, NZ$1.64
 
After falling for most of 2018, the euro saw some slightly stronger demand at the end of the year and into January due to some optimistic political developments in the past month, as well as fresh weakness in its rival the US dollar.
 
For much of the last quarter, euro investors were concerned by rising tensions between Italy and the EU.
 
Italy’s controversial budget plans were rejected by the EU as they defied the EU’s rules regarding government spending and borrowing deficits.
 
The EU threatened Italy with possible disciplinary action and pressured Rome to reassess its budget plans.
 
After months of uncertainty and some negotiations however, Italy agreed to slash its planned budget deficit from 2.4% to 2.04%.
 
On top of this, the Euro has benefitted from weakness in its rival, the US dollar. The euro is negatively correlated to the US dollar, so expectations of Federal Reserve dovishness and signs of a slowing US economy have bolstered the euro.
 
However, the euro’s appeal has been limited too, as Eurozone data published throughout the last month has generally indicated that the economy is slowing and is likely to slow further in the coming months.
 
With Eurozone political developments taking a backseat for now, the euro is more likely to driven by Eurozone economic news, as well as strength in rivals, over the coming month.
 
A slew of key Eurozone ecostats will be published next week, including Germany’s full-2018 growth rate, as well as December’s inflation data from Germany and the Eurozone overall.
 
Towards the end of January, Markit will publish its January PMI projections as usual. The European Central Bank’s (ECB) January monetary policy decision, which takes place on the 24th, has the potential to be one of the more influential upcoming events however.
 
Depending on upcoming data, the ECB’s tone towards the Eurozone economic outlook and monetary policy could shift, which would be hugely influential for the single currency.
 
Of course, any major shifts in the strength of the US dollar (USD), caused by US political news or US-China trade developments, could also cause some movement in its rival the euro over the coming month.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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