The Euro (EUR) was maintaining its position at an eight-month low against the US Dollar (USD) on Friday as the single currency remains under pressure from weak inflation data and as the ‘Greenback’ strengthened broadly on improving data releases.
Thursday’s data which showed that the annual rate of inflation in the Eurozone fell to a five year low of 0.4% in July weighed heavily as investors grow concerned that deflation could soon establish itself in the currency bloc.
The data also puts added pressure onto the European Central Bank (ECB) to introduce new stimulus measures in order to encourage growth and tackle the threat posed by low inflation.
Speculation is mounting that the Bank could introduce a quantitative easing programme similar to the ones seen in Japan, USA and UK.
Such a move would raise concerns over the diverging economies of the Eurozone and its major peers such as the US and UK, both of which are likely to raise interest rates and cut their own quantitative easing programmes.
With data released earlier in the week showing that the USA’s labour market is strengthening investors raised their bets for the Federal Reserve to hike interest rates.
The positive news has seen the US Dollar rally strongly against all of its most traded peers and that rise is forecast to continue for some time.
The Pound (GBP) meanwhile fell against the single currency for a fifth consecutive day on Friday as manufacturing PMI data showed a slowdown in July and on signs that the UK house market is cooling.
The softer than forecast data added to Thursday’s comments made by BoE deputy governor Ben Broadbent who said; “The edge is coming off of the UK’s housing market”. He added; “Partly because of what’s happening in the housing market, partly because the global economy is arguably a little softer than one might have hoped, to expect some slowdown over the next year, toward the end of the year into next year, isn’t unreasonable.”
Investor focus will now be turning to next Thursday’s ECB policy meeting.
If new measures are introduced we could see the Euro go back onto the retreat against Sterling and make further declines against the buoyant US Dollar.
Euro Exchange Rates
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