The Euro to US Dollar (EUR/USD) exchange rate fell to a fresh 9-year low on Tuesday as economic data showed that the Eurozone economy ended 2014 in a bad state, and as tensions rise ahead of the Greek general election due to be held on January 25.
Data showed that the economic downturns in France and Italy continued in December and Germany, the powerhouse of the Eurozone is still performing poorly. Concerns are building that the single currency bloc will slid into recession over the course of 2015 as the economy made its worse performance in the fourth quarter of 2014 in over a year.
According to Markit, its Eurozone Composite Purchasing Managers Index (PMI) fell from a reading of 51.7 to 51.4 in December. The PMI is based on surveys of thousands of companies across the Eurozone and is regarded as a good indicator for growth.
A separate report also showed that activity in the Eurozone’s services sector slowed last month. The services PMI declined from 51.9 to 51.6.
The hoped for European recovery has not materialised as France continues to stagnate, Italy remains mired in recession and Germany flirts with falling into its own recession. The upcoming Greek elections, which has the potential to see Greece exit the Euro has also added to the uncertainty surrounding the currency bloc.
Economists have raised their expectations that the European Central Bank (ECB) will announce a quantitative easing programme at its policy meeting due to be held later this month. If such measures are announced, we can expect more volatility for the Euro and more declines against the US Dollar.
‘The weakness of the PMI in December will add to calls for more aggressive central bank stimulus, including full-scale quantitative easing, to be undertaken as soon as possible. The Eurozone will look upon 2014 as a year in which recession was avoided by the narrowest of margins, but the weakness of the survey data suggests there’s no guarantee that a renewed downturn will not be seen in 2015,’ said Chris Williamson, chief economist from Markit economics.
Greece Election Spooks Traders
The uncertainty surrounding the upcoming Greek general election also continues to weigh upon the Euro and cause investors to favour the safety of the US Dollar. Both sides have begun to attack the other with current Prime Minister Antonis Samaras warning that if rival party Syriza win then Greece will become bankrupt and thrown out of the Eurozone.
Countering that, Syriza leader Alexis Tsipras said; ‘We will cancel austerity. Under a Syriza government, Greece will exit the bailout. This is not negotiable.’
He also said that he wants Greece to receive the same level of debt relief (50%) that Germany secured in 1953, which Greece signed up to despite the death of its citizens under Nazi occupation.
The US Dollar is forecast to strengthen further against the Euro later in the session as economists forecast that US Data will add to speculation that the Federal Reserve is getting closer to raising interest rates.
Euro Exchange Rate News:
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