The Euro (EUR) exchange rate inched higher against the Pound (EUR/GBP) and US Dollar (EUR/USD) on Monday as investors chose to focus on a better than expected sentiment report rather than on more bad data out of Italy and Greece.
Fears that Italy is sliding deeper into recession were strengthened after economic data showed that manufacturing output in the Eurozone’s third largest economy declined yet again in September. According to ISTAT, industrial production shrank by 0.9% on a month on month basis, a figure that was worse than the 0.2% decline forecast.
On a quarterly basis industrial production fell by 1.1% in the last quarter meaning that the pace of decline is accelerating from the 0.5% seen in the second quarter of the year, and is the biggest fall recorded since the final quarter of 2012. On an annual basis, production is 2.9% lower.
The poor data now makes it likely that Italy will officially remain mired in recession on Friday when the latest Eurozone GDP data is released.
‘IP data are consistent with our expectations that Italy has remained in recession in Q3 and that it will not exit from it before Q1 next year, at best. If anything, the data reinforces the downside risk to our forecast. Weakness was broad based across all types of goods production,’ said Barclays in a note to clients.
More bad news came from Greece as inflation data added to political uncertainty and concerns over the nation’s economy. Hopes for a moderate increase were dashed after inflation fell sharper than forecast in October. Greece is deep in deflation and with the latest Consumer Price Index tumbling by -1.7% the nation has experienced deflation for a 20th consecutive month. An industrial production report also disappointed hopes for signs of improvement.
As is common investors and the markets clung to the only piece of data, which showed signs of improvement.
According to the research group, Sentix, sentiment across the 18-member Eurozone improved slightly in November following three consecutive months of decline. The sentiment index rose to -11.9 in November from the preceding month’s figure of -13.5.
‘The decline in growth expectations since August came to a halt in November. Statements by the Bank of Japan and the European Central Bank helped boost investor’s outlook for the next six months. Cautious optimism for the Eurozone appears appropriate, even if the dangers of recession are not completely overcome and it is not clear how sustainable investors improved mood will be,’ Sentix said in a statement.
The slightly improved sentiment report was enough to send the Euro higher against the Pound and US Dollar in a session devoid of market moving data releases out of both the UK and USA.
Elsewhere in the Eurozone, the citizens of Catalonia voted overwhelmingly in favour of independence from Spain in a referendum ruled illegal by Spain’s central government. The result is likely lead to increased calls for a proper vote on the issue, something that could encourage other independence movements across the continent.
Euro Exchange Rate Forecast
The Euro is forecast to experience little movement on Tuesday due to a lack of economic data releases from the Eurozone, UK and USA.
Wednesday promises to see volatility in the EUR/GBP and EUR/USD exchange rate pairings as the latest UK unemployment data is likely to support the Pound and Eurozone industrial production data could disappoint.
On Thursday, the European Central Bank is due to publish its monthly report. Economists will be keen to see whether the bank is getting closer to introducing new easing measures to support growth and tackle low inflation across the Eurozone.
EUR/GBP and EUR/USD Exchange Rates Little moved
The Euro was little changed against the Pound and US Dollar on Tuesday as a lack of market moving economic data releases in Europe,UK and USA led to muted trading. The Pound was holding onto gains as economists turned their attention to Wednesday’s UK employment data and Bank of England inflation report. Against the US Dollar the single currency could regain some ground if the latest industrial production data shows signs of improvement. The only data releases due from the USA on Wednesday will be Mortgage applications data. Thursday sees the release of inflation data out of Germany and France, another month of soft inflation and the Euro will soften as concerns over deflation are sure to rise.
Euro Exchange Rate:
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,,US Dollar,1.2417 ,
Euro,,British Pound,0.7827 ,
Euro,,Australian Dollar,1.4389 ,
Euro,,Canadian Dollar,1.4139 ,