The Euro was 0.37 per cent softer against the US Dollar and 0.23 per cent weaker against the Pound on Tuesday as the impact of last week’s European Central Bank rate decision continued to be felt and the odds of rate increases occurring in both the UK and US climbed.
Yesterday the Euro softened against several of its main rivals in response to a less-than-impressive Sentix investor confidence report for the Eurozone. The common currency held these declines today as Italy’s final growth figures for the first quarter confirmed quarter-on-quarter contraction of 0.1 per cent and year-on-year contraction of 0.5 per cent.
According to an Istat official Italy is ‘in a phase of stagnation’.
However, while this result was far-from-positive, it wasn’t all bad news for the major Eurozone economy as Italy’s industrial output enjoyed a stronger rebound than anticipated by increasing 0.7 per cent in April. This followed two previous monthly declines.
Meanwhile, the Pound staged a modest rally in response to upbeat UK manufacturing and industrial production reports.
Although Sterling didn’t surge after a 0.4 per cent month-on-month increase was recorded for both manufacturing and industrial production in April, the British asset did consolidate its gains against the Euro.
The reports are just the latest in a string of UK data demonstrating how resilient the nation’s economic recovery is becoming, and certainly add to the argument in favour of the Bank of England bringing in an interest rate increase before the beginning of next year.
While the European Central Bank is still loosening fiscal policy, the BoE could be about to engage in a tightening cycle.
In the view of industry expert Neil Jones; ‘Sovereign divergence is at work here. Large investors around the world are reassessing their currency holdings and money is shifting from the Eurozone to the UK. That’s benefiting the Pound.’
The odds of the Federal Reserve introducing an interest rate increase also climbed recently after James Bullard, President of the Federal Reserve Bank of St Louis, intimated that if the US economic recovery continues at its current pace a rate hike could be a sensible course of action in the medium term.
The Euro’s current weakness against the US Dollar is at least partly attributable to this development.
Today’s US JOLTS job openings figure could impact the Euro to USD exchange rate before the close of the European session.
With UK jobs data due out tomorrow, further Euro to GBP movement can be expected.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.3536,
Euro,,British Pound,0.8071,
Euro,,Australian Dollar,1.4488,
Euro,,New Zealand Dollar,1.5934,
Euro,,Canadian Dollar,1.4779,
[/table]
