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Weekly roundup: Euro reactive to ECB policy hints

currency-newsWeekly roundup: Euro reactive to ECB policy hints
The euro had a mixed week last week, with data largely showing a healthy economy, but the odds of the European Central Bank (ECB) changing monetary policy any time soon remain weak. Overall, though, the common currency was on soft form.

Monday’s manufacturing PMI data from IHS Markit failed to give the euro much of a boost, largely because it was the finalised version of earlier releases. Markets had already reacted positively when the preliminary estimates showed that the currency bloc’s manufacturing sector had seen activity pick up to the fastest pace in six years. This left limited upside potential for the euro.

In fact, the common currency remained largely unappealing for the rest of the week. Producer price data on Tuesday weakened the inflation outlook after showing that prices declined by -0.4% on the month in May - twice as fast as forecast. This meant year-on-year prices had risen 3.3%, against expectations of 3.5% growth. This could weaken the odds of the European Central Bank (ECB) hiking interest rates, as falling producer costs suggest consumer prices are more likely to fall than rise.

Wednesday’s finalised services and composite PMIs for France, Germany and the Eurozone all showed a sharp upwards revision on the initial estimates, giving the euro a small boost. However, the common currency was prevented from making any notable gains by comments from the ECB’s Benoît Cœuré, who claimed that policymakers had not yet discussed the notion of changing monetary policy.

This means it is unlikely that the vast quantitative easing programme will be scaled back any time soon; something markets had been hoping for.

Euro fortunes were reversed on Friday, however, after a strong round of industrial production data from Germany. Output rose 1.2% on the month in May, meaning on the year production growth came in at 5%. In both instances this was a whole percentage point better than economists had expected. This helped the euro to recover some of the week’s losses going into the weekend.

The next few days offer little in the way of notable Eurozone data. Wednesday’s industrial production figures will be one of the exceptions; following Friday’s solid performance from Germany markets will be hoping for a similar showing from the currency bloc as a whole.

Finalised German consumer price figures for June will be released on Thursday, but unless they show a surprise revision on the estimates - something that isn’t currently expected - they aren’t likely to have much of an impact.

Eurozone trade balance figures are set for release on Friday and are expected to show that the trade surplus increased.
 
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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