EUR weekly update

The Euro has gained favour over the course of the week, partly on improving Eurozone economic conditions but also by default as the US dollar declined to an 11 month low against a basket of currencies.

The US Federal Reserve left rates steady at 0.25% – 0.50% with the wording of its policy statement suggesting that it is now more relaxed than a few months ago about the state of the global economy. With the American economy clearly slowing down, prospects for a Federal Reserve interest rate hike in the near term have weakened.

The beginning of the week saw German business confidence dip, but only very slightly for the month of April, as the much watched Ifo business climate index delivered a result of 106.6 vs 106.7 a month earlier, as the weakening of exports to China continues to bite. The Euro vs the dollar was trading near its low of the week at $1.1250.

The single currency was able to shake off a weak inflation report. Eurozone inflation data reported a decline to minus 0.2 per cent for April from flat a month earlier. Typically you would expect the Euro to fall on this data, with deflation concerns being taken very seriously, however with European GDP (Gross Domestic Product) data released more or less at the same time the single currency was able to plough on higher as the EU economy expanded by 0.6 percent in the first quarter of 2016. Europe’s unemployment rate also declined in March to the lowest since 2011.

Based on the latest data, albeit revisions will come in the months ahead, the Eurozone area grew faster than both the UK and USA during the January-March period, with the UK expanding 0.4 percent and the US by 0.5 percent on an annualised basis. The sterling / Euro rate of exchange has now drifted lower to 1.28 having briefly touched a high of 1.2927.

It must also be heartening for ECB President Mario Draghi to see both the French and Spanish economies expanding faster than expected. Growth in France accelerated to 0.5 percent from 0.3 percent, helped by investment and consumer spending, while Spain shrugged off a political deadlock that’s left it facing new elections to grow 0.8 percent.

ECB monetary stimulus measures are clearly now having the desired effect, with an improvement to confidence levels likely to follow. The single currency ends the week on a high now well above the $1.14 level against the dollar.

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