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Contagion fears rise as German manufacturing services contract

The Euro has tumbled against the US Dollar and a basket of currencies after PMI data showed that Germany has been dragged deeper in to the Euro crisis raising fears that the crisis has finally infiltrated the regions heart.

The PMI data that showed that German production declined to 47.9, down from economist expectations that it would come in at 49. France meanwhile showed a slight improvement rising to 44.4 from 44. With contagion from the Euro crisis now embedding itself into the heart of the Eurozone, economists and politicians will surely have to find alternatives to their failed austerity measures. Despite the disappointing German data and continuingly decline of the Eurozone in general, France offered a small sign of improvement.

Kit Juckes of Société Générale said, “At the margin, it is good news that we saw the divergence between Germany and France partially unwound, with German data coming out soft.But the underlying story is that one of the best indicators of what is happening to growth suggests a mild depression continues, getting neither better, nor worse.

‘There will be debate about whether the ECB will cut rates further, though I doubt that would make any economic difference (except to the very front end of the Euro curve). But the ECB won’t be tightening for a very, very long time indeed! Peripheral bond markets continue to rally and that in turn means FX models don’t point to any great danger to the Euro, though I still think a weaker currency is needed, and inevitable if I am patient enough.”

PMI in the Eurozone has now declined for a 15th month in a row and has caused some economists to take bets that the European Central Bank could be close to cutting interest rates.

Economist Howard Archer of IHS believes that the ECB is likely to cut interest rates, perhaps as early as next week, following today’s data he said; “The ECB indicated at its April policy meeting that it is increasingly open to taking interest rates down from 0.75% to 0.50%, and the latest comments by senior ECB policymakers indicate that an interest rate cut could well occur if Eurozone economic activity continues to disappoint.

The April purchasing managers surveys certainly seems to fit the bill for an ECB interest rate cut and we believe there is a strong chance that the ECB will act as soon as its 2 May meeting. If the ECB does hold fire on interest rates at its May meeting next week, this looks increasingly likely to be only delaying the inevitable.”

If the bank does decide to cut rates it is highly doubtful that such a move would have hardly any effect. Being so low already will not give the economy the much needed kick up the rear it needs. Further signs of no growth in the Eurozone will see the Euro weaken further.

As of 12:15 pm GMT

The Euro to Pound Sterling exchange rate is currently trading in the region of 0.8519

The Euro to US Dollar exchange rate is currently trading in the region of 1.2983

The Euro to Australian Dollar exchange rate is currently trading in the region of 1.2658

The Euro to New Zealand Dollar exchange rate is currently trading in the region of 1.5438