The Euro (EUR) was able to firm against the Pound (GBP) and US Dollar (USD) on Monday after the UK currency was weakened by comments that the currency is overvalued and as the ‘Greenback’ was weighed on as investors embarked on a round of profit taking.
UK Business Secretary Vince Cable said on Sunday that the UK’s economic growth is being harmed by stalled exports, which he blamed on the high value of the Pound. His comments added to those made last week by Bank of England Deputy Governor Ben Broadbent and by the International Monetary Fund (IMF) earlier in the month.
‘Arguably the Pound is overvalued by 10 to 15% on a trade-weighted basis. This feeds back into monetary policy. It is significant problem that we can’t directly address,’ Mr Cable said whilst addressing the Liberal Democrat conference in Scotland.
Concerns that the UK recovery is slowing were supported last week as a number of key Purchasing Managers Index reports showed a slowdown in most of the UK’s key economic sectors. The softer data spurred some economists to reduce their bets that the Bank of England will raise interest rates early next year.
The US Dollar softened against the Euro and other major peers as traders embarked on a bout of profit taking following last week’s stronger than expected US jobs data. The buying slowed the ‘Greenback’s’ rally temporarily and allowed the single currency to edge away from a two year low.
Diverging monetary policy expectations have boosted the US Dollar against the Euro in recent months, with the European Central Bank likely to stick to a looser monetary policy stance amid concerns over deteriorating inflation expectations.
The Federal Reserve however, is getting closer to tightening its policy.
Euro Exchange Rate Forecast to Weaken
The Euro is expected to soften again over the course of the week as concerns over the health of the Eurozone economy continue to grow. A report released on Monday showed that German factory orders plummeted to the lowest level since 2009 in August, as weakness in the Eurozone and concerns over the standoff with Russia impacted demand.
The data showed that orders fell by -5.7% in August, well below expectations for a drop of -2.5%. On a year on year basis, orders dropped by 1.3%.
Is a Eurozone Recession on the Way?
A separate report released on Monday showed that investors in the currency bloc are now at their most pessimistic levels in over a year, suggesting that the region is sliding back into recession.
According to Sentix’s index of investor confidence, morale in the Eurozone tumbled to -13.7 this month, the worst figure seen since May 2013.
‘As the assessment of the current situation and the 6-month expectations both are now clearly in negative territory, the Sentix indices point currently to a recession in the Euro area,’ said Sentix’s senior analyst, Dr. Sebastian Wanke.
Euro Exchange Rate News:
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