The Australian Dollar (AUD) to Euro (EUR) Exchange Rate climbed to its best level of the year so far after the French government resigned over the country’s economic woes and as economic stagnation, the threat of deflation and high unemployment all weigh upon the single currency.
On Monday the Euro came under sustained pressure as economic data out of Germany showed that business sentiment in the 18-member currency bloc fell more than expected in August as the Ukraine crisis and a stalling economy dented confidence. Business expectations in the country also came in below forecast.
Adding to the Euro’s woes was the news that French President Francois Hollande was forces to dissolve his government due to bitter infighting amongst its ministers over the state of the country’s economic situation.
A bitter row over whether France should pursue a German-led policy of fiscal cuts and austerity or to spend in order to encourage growth was thought to be the major cause of the government’s breakdown. The argument came to a head when outspoken Economy Minsiter Arnaud Montebourg publicly condemned the government’s policies.
‘The entire world is urging us –even begging us- to end these absurd austerity policies that are plunging the Eurozone into an economic slowdown. My responsibility as economy minister is to tell the truth, and observe…that not only are these austerity policies not working, but they are also unfair, as well as being ineffective,’ Mr Montebourg said.
Also putting pressure on the Euro were comments made by European Central Bank President Mario Draghi in last week’s speech at the Jackson Hole Symposium.
In his speech to the world’s leading finance ministers Mr Draghi said that the ECB is ready to introduce unconventional measures in order to stimulate the stalling Eurozone economy. Investors expect that those measures could include the introduction of a quantitative easing programme.
On Tuesday, the Euro was little moved against the Pound and US Dollar but remained under pressure on concerns that the Ukraine situation could deteriorate further. Yesterday news broke that an armoured column comprised of Russian tanks crossed the Ukrainian border.
The Euro is forecast to weaken further on Wednesday as economists forecast that the latest German and French Consumer Confidence reports will disappoint the markets. Italy is also due to release a confidence report.
With a lack of economic data out of the UK, the EUR/GBP is likely to react to the Eurozone data and geopolitical events elsewhere. The EUR/USD exchange rate will likely experience volatility later in the session due to the publication of a number of US economic data releases.
Euro Exchange Rates
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