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Euro (EUR) Exchange Rate News: Is the Eurozone Heading For Recession?

Euro (EUR) Exchange Rate News

The year began quite well for the 18-members of the Eurozone as the region showed signs that a recovery was on the cards. Alas, it was not to be and attitudes soon changed from one that was hopeful to one of concern.

Signs of improvement in Spain and even Greece had caused economists to hope that the Eurozone was heading for a sustainable recovery over the course of 2014. Things looked as though they were getting better and then the Ukraine crisis erupted. The markets had of course been jittery as 2013 ended as clashes between pro-EU demonstrators and riot police ended with the ousting of Viktor Yushchenko.

Ukraine and Russian Sanctions Start to Bite

Then the crisis got a whole lot worse as Russia occupied Crimea and Ukraine was split in two between a pro-Western government based in Kiev and pro-Russian separatists who vowed to battle for the east of the country to become independent states. War was inevitable and alas, the two sides engaged in conflict.

All the while, the Eurozone was continuing to show tentative signs of recovery but yet again Ukraine spooked the markets. Russia was accused of interfering in the fighting and as a result, the EU and US imposed sanctions against Russia, a move that damaged trade and economic ties between the two sides.

Germany, the powerhouse of the Eurozone has close business ties with Russia and the imposition of sanctions damaged economic confidence in the nation. As the months passed and more sanctions were imposed, more damage was inflicted.

Manufacturing production slowed as demand from Russia and the Europe fell on concerns of the escalating standoff between NATO and Russia. It even got to the point where some feared a direct clash between the two as Russian forces amassed on Ukraine’s border. The shooting down of passenger airliner MH 17 rocked the markets further and sent the Euro tumbling against the US Dollar and Pound.

Elsewhere in the Eurozone, Frances economy stagnated and Italy fell back into recession. The hoped for recovery was fading fast.

Data released this week, heightened concerns that Germany is heading for a recession. Industrial production tumbled and factory orders fell steeply.

ECB Takes action

Another factor weighing heavily upon the Eurozone were concerns over the threat of deflation taking root across the region. Inflation fell further away from the ECB’s target rate of just under 2% and caused the Central Bank to cut interest rates to new record lows in an attempt to increase inflation.

So far, it has not worked and now the markets are pressuring the bank to loosen monetary policy further and perhaps introduce a quantitative easing programme similar to the ones used in Japan and the UK.

Other Pitfalls for the Euro

The Euro is facing a number of major issues now. With growth stalling and inflation, edging ever nearer to deflation territory the region is also under threat from continued market concerns over the situation in Ukraine and the rise of anti-EU parties such as France’s National Front.

News that the Ebola virus has infected a nurse in Spain is also likely to weigh upon the single currency. If the virus spreads then the impact upon the economy could be severe indeed. Another major factor weighing is the diverging trends of the Eurozone and other major economies such as the USA and UK.

If Thursdays German Balance of Trade data comes in below expectations we can expect to see the Euro weaken.

Euro Exchange Rate News:

[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,,US Dollar,1.2672 ,
Euro,,British Pound,0.7880 ,
Euro,,Australian Dollar,1.4438 ,
Euro,,Canadian Dollar,1.4164 ,

As of 15:05 pm GMT