On Tuesday the Euro began the local session in a softer position against peers like the US Dollar and Pound as investors braced themselves for the release of inflation and employment data for the Eurozone.
The Euro eased lower yesterday after manufacturing PMI for the Eurozone was negatively revised and German inflation printed lower-than-anticipated.
These declines were extended on Tuesday and the common currency was close to a three-month low against the ‘Greenback’.
Before the reports were published, forex researcher Arne Lohmann Rasmussen stated; ‘The CPI data will confirm that the European Central Bank will deliver. Market expectations are high and we should be aware that the probability of movements is skewed toward if the ECB disappoints the market.’
It is widely expected that the ECB will introduce additional stimulus measures when it meets on Thursday and this morning’s report certainly supported the case for action being taken.
The Eurozone’s consumer price index advanced by 0.5 per cent in May, year-on-year, less than the 0.6 per cent expected and down from 0.7 per cent in April.
The Euro to GBP exchange rate is currently trading around 0.8137.
The core inflation rate dropped from 1.0 per cent to 0.7 per cent.
The threat of deflation has been one of the main pressures on the Eurozone in recent months and today’s result confirms that the ECB must take decisive steps to bring consumer price inflation back to target levels.
Economists are forecasting that the central bank will introduce a negative deposit rate, an interest rate cut or a quantitative easing style programme. The ECB may even bring in a combination of these measures.
However, it wasn’t all bad news for the Eurozone today as the region’s unemployment rate declined from 11.8 per cent to 11.7 per cent – the lowest level since November 2012.
Joblessness fell by 76,000 from March to April, although there were extreme variations across the currency bloc.
Greece, for example, posted an unemployment rate of 26.5 per cent while Germany’s jobless rate was just 5.2 per cent.
Meanwhile, demand for the Pound cooled slightly as the UK’s construction PMI slipped in May, with the measure falling from 60.8 to 60.0 – an increase to 61.0 had been projected.
David Noble, of the Chartered Institute of Purchasing & Supply issued this statement with the figures; ‘With supply constraints still persisting, there are some concerns about how this prolonged period of growth can be sustained over the course of 2014.’
As European trading progressed the Euro was just 0.10 per cent lower against the Pound and was little changed against the US Dollar.
Today’s US factory orders report could trigger more EUR/USD movement.
After sliding against its rivals in the immediate aftermath of the publication of Eurozone inflation data, the Euro went on to pare losses as the European session continued.
The Euro strengthened by 0.23 per cent against the Pound and 0.25 per cent against the US Dollar as investors bet that the currency won’t depreciate further after the European Central Bank delivers its rate decision.
In May the ECB stated that it was ‘comfortable’ with the idea of taking policy action in June, and in the weeks which followed the Euro edged lower against the majority of its most traded currency counterparts.
The Euro hit a three-month low against the US Dollar and slumped to a 17-month low against the Pound.
However, the common currency has now come off its weakest levels.
Industry experts are forecasting that the Euro will be relatively unaltered by the ECB decision as action has already been priced into the market.
In the opinion of one European forex strategist; ‘Many short Euro positions are in place. If the ECB disappoints and perhaps only cuts the refinancing rate, you will see a move higher in Euro-Dollar.’
The EUR to USD pairing remained slightly stronger even after US factory orders were shown to have increased by more than the 0.5 per cent expected.
Factory orders were up 0.7 per cent in April.
A measure of US economic optimism also rose from 45.8 to 47.7.
While today’s Eurozone inflation figures fell short of forecasts, the currency bloc’s employment report showed an unexpected decline in joblessness.
The Eurozone’s unemployment rate edged from 11.8 per cent to 11.7 per cent.
Speculation surrounding the ECB’s Thursday meeting will be the main focus of investor interest but Euro volatility could be sparked tomorrow by German/Eurozone services PMI and Eurozone growth data.
If the Eurozone’s economy is shown to have expanded by less than the 0.2 per cent estimated in the first quarter the Euro could shed today’s advance against the Pound.
Euro to GBP & USD Update: 10:25 GMT 04/06/2014
The Euro showed its resilience yesterday as it held its own against the Pound despite the worse-than-expected inflation report for the Eurozone.
Although consumer prices were shown to have slowed by more than anticipated, adding to the case for European Central Bank policy adjustments, the Euro maintained a steady relationship with Sterling and was little changed against the US Dollar.
Modest Euro to USD declines did occur during North American trading as US factory orders rallied by more than anticipated, but the pairing achieved a high of 1.3627.
On Wednesday the Euro experienced movement as a result of services PMI reports for Germany and the Eurozone.
While the measures remained above the key 50 mark, the final figures were lower than initial estimates.
German services PMI printed at 56.0 instead of 56.4 and Eurozone PMI printed at 53.2 instead of 53.5.
The Eurozone’s composite PMI figure of 53.5 was down from 54.0 in April and prompted this response from Markit economist Chris Williamson; ‘Despite falling, the Eurozone PMI remains firmly in expansion territory and consistent with GDP rising by a reasonable 0.4%-5% in the second quarter.’
However, Williamson did go on to state that the Eurozone’s economic recovery was ‘uneven, stuttering and lacklustre’.
As the European session continued the currency bloc’s growth report for the first quarter was published.
The 0.2 per cent quarter-on-quarter expansion was in line with initial estimates.
The Euro dipped by just 0.08 per cent against the US Dollar and 0.05 per cent against the Pound in the aftermath of the reports’ release.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.3608,
Euro,,British Pound,0.8137,
Euro,,Australian Dollar,1.4678,
Euro,,New Zealand Dollar,1.6170,
Euro,,Canadian Dollar,1.4872,
[/table]
