A renewed commitment to improve the European Union boosted confidence in the Euro yesterday, keeping EUR USD exchange rates around opening levels.
- UPDATE: Finalised German GDP holds steady – 3.1% growth on the year during Q2
- EUR USD exchange rate around opening levels – EU leaders meet to discuss future of Union
- Italian PM hosts German Chancellor, French President – Markets boosted by show of solidarity post-Brexit vote
- US Dollar firm on Fed Rate Hike Hopes – Markets looking ahead to Friday’s annual symposium
- EUR USD exchange rate forecast – Slew of Eurozone PMIs ahead
Euro Holds Above Opening Levels despite Falling German Business Confidence
The latest German IFO surveys have shown a surprise fall in business confidence during August, undermining market belief that the Eurozone had escaped the initial Brexit shock unscathed. The Business Climate index dropped from 108.3 to 106.2, while the Current Assessment has fallen from 114.8 to 112.8. Expectations have dropped from 102.2 to 100.1. In all instances a gradual uptick had been forecast.
Jackson Hole speculation is still keeping the EUR USD exchange rate in positive territory, but elsewhere the Euro has weakened on the back of the news.
(Last updated 09.10, 25/08/16)
Markets were largely focussed upon the Federal Reserve, awaiting Janet Yellen’s speech at the Friday Symposium in Jackson Hole. The Fed Chairwoman hasn’t delivered a speech for some time and investors will be eager to hear what the official has to say on the subject of monetary policy and the Fed’s initial plan to hike interest rates at least once in 2016. Any dovish commentary from Yellen is likely to drive the US Dollar lower and push the Euro higher by default.
While the Fed speech is the week’s main news a meeting between the Italian, French and German heads of state garnered significant attention as well.
Euro Weakens from Opening Levels despite German Economic Strength
Germany’s finalised GDP figures for the second quarter of 2016 have held steady, showing the economy expanded by 0.4% on the quarter and 3.1% on the year. However, because the latest figures match earlier estimates, the markets have already priced in the strength of the German economy, leaving the Euro without support from the data. A greater-than-expected fall in capital investment is also dampening the impact of the releases, leaving EUR USD without support. The news that Germany has posted an €18 billion budget surplus for the first half of the year is likely to cause some tension; other member states are struggling with their economies, partly due to a lack of investment in the Eurozone. The European Central Bank (ECB) has already criticised Germany’s lack of investment for limiting the positive effects of its monetary stimulus, so news the country is on course to eclipse the previous year’s annual surplus hasn’t been met with positivity.
(Last updated 12.33, 24/08/16)
EUR USD Advances after Positive French PMIs; German and Eurozone Markit Data Ahead
The Euro is strengthening today after the first of a PMI slew showed a better-than-expected performance from the French economy in August. Flash estimates showed that, while the manufacturing sector dipped ten basis points to 48.5, the services sector saw accelerated growth from 50.5 to 52, pushing the composite index up from 50.1 to 51.6. More PMIs are to follow.
(Last updated 08.55. 23/08/2016)
Euro Manages to Hold Ground as Heads of State Swap Vision of EU Future
A lack of domestic data yesterday saw markets turning their attention to a meeting between three key EU leaders. Germany’s Angela Merkel and France’s Francois Hollande met with Italy’s Prime Minister Matteo Renzi to discuss their hopes for the European Union going forward now that the UK has voted to leave.
Explaining the reason for the meeting on his Facebook page, Renzi commented;
‘It is easy to blame Europe for everything – harder to try to build a different Europe that pays more attention to values and less to big finance … Confronted with problems, one has a choice: find someone to blame or find a solution. We are working to solve the problems.’
With many worried that the UK’s Brexit decision could trigger the collapse of the entire European Union, the show of solidarity and commitment from the three leaders cheered the markets, allowing the Euro to remain in positive territory against all the majors bar the Pound (GBP) and the New Zealand Dollar (NZD).
US Dollar Firm on Market Expectations of Hawkish Fed Symposium
The Federal Reserve will convene in Jackson Hole, Wyoming, at the end of the week for its annual symposium – considered by many to be the most important event in its yearly calendar. Markets will be particularly keen for Fed Chair Janet Yellen’s speech on Friday; expectations are that Yellen will signal a need for tighter US monetary policy in the near future.
Those expectations were buoying the US Dollar yesterday, allowing it to make strong gains against the Canadian Dollar (CAD), the Swiss Franc (CHF) and the South African Rand (ZAR). The ‘Greenback’ remained around opening levels versus the Euro, however, with the common currency also strengthening.
According to analysts at Barclays;
‘We believe Chair Yellen may use the opportunity to signal the FOMC’s growing confidence in the outlook for activity and inflation, given the rebound in labour markets since June and the solid rise in household spending in Q2 GDP. Although some FOMC members have lingering concerns about inflation, we expect Yellen to deliver a stronger signal about the likelihood of near-term rate hike and retain our view that the next increase will occur in September.’
Euro US Dollar (EUR USD) Exchange Rate Forecast; PMI Slew could Cloud Eurozone Outlook
Flash French, German and Eurozone PMIs for August are set for release today. While the French indices are largely predicted to improve, the German and Eurozone measures are expected to weaken marginally, with the exception of Eurozone manufacturing, which may hold steady at 52. While there is always a danger that the results will be worse-than-expected, recent Eurozone PMIs have defied forecasts to print positively, so there is the possibility of a supportive increase in the indices.
Markit will also release its manufacturing PMI for the US, with economists anticipating a minor slowdown from 52.9 to 52.7. The US PMI isn’t as impactful as the index released by ISM, but it could still move the US Dollar if markets believe the result to be positive or negative enough to have altered the Fed’s economic outlook.
EUR, USD Conversion Rates
During yesterday’s European session the Euro US Dollar (EUR USD) exchange rate was trending around 1.1312, while the US Dollar Euro (USD EUR) exchange rate was trending in the region of 0.8837.