The Euro (EUR) gave up earlier gains against the US Dollar (USD) and continued to weaken against the Pound (GBP) on Thursday as more dire data out of Germany raised fears that the Eurozone is sliding towards a recession.
The latest Balance of Trade report added to a dire week of data releases for Germany. Exports out of the Eurozone’s dominant economy tumbled by 5.8% in August according to the German Federal Statistical Office.
Exports to nations in the European Union increased by 2% but to countries outside Europe they plunged by 4.7%. Imports meanwhile dropped by 1.3% causing the nation’s trade surplus to shrink to €17.5 billion. The poor trade data adds to weak industrial production and factory orders reports released earlier in the week.
Germany Needs a Miracle to Avoid Recession
‘No more summer miracle but rather a summer horror story in Germany. August trade data just added to the devastating evidence that the entire German economy took a pause in August. Looking ahead, this week’s German data shows that in spite of the soccer miracle in the summer, there definitely will not be any economic miracle. On the contrary the economy seems to need a small miracle in September to avoid recession in the third quarter,’ said Carsten Brzeski, an economist at ING.
Adding to the Euro’s woes was data out of Greece, which showed that unemployment remains at 26% and that the embattled economy fell deeper into deflation. The Greek consumer prices index fell to a reading of -0.8% in September showing that the rate of deflation accelerated from the preceding month’s figure of -0.3%.
Eurozone Weakness Hurting Other Economies
It now seems that other nations, which trade with the Eurozone, are concerned that the regions weakness will have a negative impact on their economies.
The Bank of England chose to leave interest rates unchanged at 0.5% and it is unlikely that more policy makers joined Ian McCafferty and Martin Weale in voting in favour of a rate rise. Over the past few weeks, the Bank has warned that the weakness in the Eurozone will cause the bank to stay its hand.
UK Chancellor George Osborne warned that the weak Eurozone in beginning to threaten the UK’s economic recovery.
‘This is a critical moment for the British economy. The Eurozone risks slipping back into crisis. Britain cannot be immune from that. It’s already having an impact on our manufacturing and our exports,” said Mr Osborne in an interview with the BBC.
More Euro Weakness Forecast
The Euro is likely to soften further against the Pound and US Dollar as the region’s economic fortunes continue to diverge from those in America and the UK. If UK Balance of Trade data comes in better than forecast than the GBP/EUR exchange rate will advance. Economists will also be watching out for the latest Industrial Production data out of France and Italy.
Euro Exchange Rate News:
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.2726 ,
Euro,,British Pound,0.7861 ,
Euro,,Australian Dollar,1.4378 ,
Euro,,Canadian Dollar,1.4127 ,
[/table]
