EUR weekly update

The European single currency has maintained its recent strong tone having gained further ground against both the US dollar and British pound over the last week.

Weak European inflation currently running at -0.1 during the month of March was ignored by the markets, possibly due to the fact that it was marginally higher than the previous month. Certain aspects of Eurozone inflation are now beginning to rise, although still miles away from where the ECB would like inflation to be.

Eurozone manufacturing was also marginally higher with its Purchasing Managers Index climbing to 51.6 for March, up from 51.2 reported in February.

So, with very little data showing any major positive effects in the Eurozone the march of the single currency was more a reflection of weakness elsewhere.

The British pound continues to disappoint, with the Brexit issue always hanging heavy over the currency. There were no new opinion polls released during the week, although not a day goes by without a new impetus from either side of the argument.

Highly concerning news that Tata Steel was looking to sell its UK going concerns, with the possible disastrous outcome of as many as 40,000 job losses, saw the Conservatives government come under considerable criticism.

With there being little to zero chance of a government bailout for the UK steel industry, the overwhelming theme seems to suggest that the current government seem lacking in their inventiveness to deliver a truly successful ‘march if the makers’ environment that truly supports UK manufacturers to compete in the global market. Should this industry go, the implications could seriously hamper the UK’s industrial landscape.

The pound did gain some ground during the early part of the week as 4th quarter GDP (Gross Domestic Product) came in slightly higher than earlier predictions. It rose to 0.6% up from 0.5% taking the annualised growth rate to just over 2%.

This reasonably good news offered Chancellor George Osbourne the chance to further throw his weight behind the ‘In’ campaign, by saying that economic prosperity would be majorly hindered were the UK to vote to leave the EU.

This positive GDP data was quickly overshadowed by the dreadful news that the UK’s current account deficit at hit a record high of £32.7billion in the 4th quarter of 2015. Britain’s trade with the rest of the world, or lack of, is a serious concern, with the UK now reliant on investors funding the shortfall on its balance of payments. As we head towards the UK’s EU referendum, investors may decide to shun buying the pound until the outcome is known. There could of course be a crisis of confidence in the UK should the population actually decide to leave the EU.

With no reason to buy the pound, sterling retreated to its lowest level against the single currency since November 2014, trading briefly at €1.2465.

The single currency was also buoyant against the US dollar as Federal Reserve Chairwoman Janet Yellen delivered a more dovish update on US interest rates, contradicting recent rhetoric that either 3 or 4 interest rate hikes would be needed stateside this year. It seems that with the current economic climate possibly only 2 hikes at most will be needed, leaving the US dollar weaker.

The Euro made further ground late Friday afternoon when the US non-farm payroll and unemployment data were released. The US is still creating jobs although the pace was slightly weaker than in February. Another 215,000 jobs were added in March, although this was lower than had been hoped for.

The unemployment rate did tick slightly higher, now standing at 5%. €/US$ rates briefly spiked to 1.1438 before settling in the high 1.13’s.

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