The European single currency had a torrid week having traded close to $1.14 against the US dollar at one point, only to drop back down below recent support levels of $1.12. The move lower was in fact more to do with changing investor sentiment back in favour of a stronger US dollar, rather than any compelling negative changes to the Eurozone economic wellbeing.
Europe’s international trade in goods did report a surplus of €28.6billion for March 2016, with exports to the rest of the world totalling €177billion, down 3% on the same month a year ago. However, imports fell by a larger amount – down 8% – meaning the surplus was healthy.
There remains a lack of inflation within the Eurozone. Annual inflation dropped back into negative territory during April at -0.2, down from zero seen in March 2016. The ECB measures to help spark an uplift in inflationary pressures are yet to materialise. ECB stimulus measures will no doubt continue unabated.
As stated the major catalyst for the decline in the Euro came not from the EU but from a shift in American interest rate expectations.
Whilst Europe’s inflation was heading lower, the United States equivalent was heading higher. Consumer price inflation rose from 0.1% to 0.4% thanks to a surge in oil prices. This news was swiftly followed by the release of the FOMC minutes which painted a far more hawkish picture on prospective American interest rate hike sentiment. The minutes hinted that the US Federal Reserve’s monetary policy committee gave further credence to the possibility of a rate hike next month, with the word “June” mentioned no fewer than six times.
The Euro fared even worse against sterling with the pound briefly regaining levels back above €1.30, having started the week not far from €1.2670.
On Wednesday it was revealed that the UK unemployment rate remained steady at 5.1% – 44,000 more jobs were added between January and March. Whilst this number is down on previous months, it was a rather surprising outcome bearing in mind businesses had been rather cautious, even reluctant, to hire whilst the backdrop of the UK’s EU referendum outcome was so uncertain.
Opinion polls can hold strong influence over currency direction, so this week’s Evening Standard UK EU referendum poll result showing 55% of respondents wanting to Remain in the EU and 37% preferring to Leave, helped boost the British pound to levels last seen back in March 2016.
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