Euro weekly update – week ending 7th July

Euro strength continued as the value of German bunds fell, making the single currency one of the week’s best performers. This was largely aided by an interesting development towards the end of the week, as further evidence emerged of the European Central Bank’s (ECB) increasing confidence in the eurozone’s recovery. It came from the release of the ECB’s June meeting notes, which showed that the central bank’s officials had discussed the removal of the reference to any future requirement to “step up the pace of bond-buying should the economy need more stimulation”. Naturally, euro investors warmed to this.

Despite the more hawkish rhetoric from the Federal Reserve, economic numbers coming out of the US showed a more mixed picture. Private-sector job creation data didn’t live up to analysts’ expectations, with the 158,000 added jobs falling wide of the anticipated 185,000. At the same time, jobless claims crept northwards. As Treasury yields rose, the dollar came under some pressure. Geopolitical concerns were also heightened with Trump calling out North Korea on its missile testing, with tougher talk of ‘consequences’. US employment data released Friday 7 July was 222k stronger than expected, giving the dollar a welcome boost to end the week.

Against sterling, the euro marched on. The pound weakened following some softer economic data releases: in addition to weak service sector growth and faltering optimism from domestic businesses, the UK’s trade deficit appears to have widened beyond what analysts had initially forecast, raising big questions around the long-term outlook of the pound.

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