Data Shows Positive End to 2015 Despite Eurozone Composite PMI Falling
While the Markit Eurozone Composite dropped unexpectedly to a two-month low, down from 54.2 to 54.0, overall the news from the economy looks positive. Strong growth saw employers hiring new staff at a pace not seen for more than four-and-a-half years, while output prices fell again. December’s expansion saw the strongest quarter of growth for more than four years.
As a result, the releases have not harmed the Euro (EUR), which continues to trend up against the majority of currencies, including Pound Sterling (GBP), the Australian Dollar (AUD) and the Canadian Dollar (CAD).
European Parliamentary Meeting Sees Ministers Issue Warnings Over Recovery
Politicians, including European Commission (EC) President Jean Claude Juncker, have warned today over the state of the Eurozone recovery, highlighting several weaknesses. Dutch Finance Minister Jeroen Dijsselbloem has also voiced concerns, suggesting that the currency bloc can’t rely on low commodity prices and loose monetary stimulus to drive growth forever.
Despite the warnings, the Euro continues to trend positively against Pound Sterling.
Attitudes towards the German and Eurozone economy are improving among economists, according to the results of the latest ZEW survey, although even with the good news the Euro is experiencing mixed fortunes across the board. Meanwhile, the UK CPI has risen to meet expectations, however this has done little to move the EUR/GBP exchange rate as the sluggish rate of inflation casts doubts over when the Bank of England will finally commit to raising interest rates.
EUR/GBP Exchange Rate News: Economic Optimism Rises for Germany and the Eurozone
The Centre for European Economic Research (ZEW) economic survey has shown a rise in confidence among economists over the condition and future of the Eurozone and Germany economies. The economic sentiment index saw an increase from 28.3 to 33.9 as more experts became optimistic over the likelihood of a positive outlook for the economy. Assessment of the current situation in Germany increased by 0.6, with the index of optimistic economists rising by 2.7 while the index of those expecting conditions to worsen fell by -3.0.
Eurozone employment has also increased by 1.1% in the third quarter. Half a million people gained employment from July-September, causing total employment to hit a six-year high of 151.5 million. Estonia led the way in job growth with an employment increase of 2.1%, while Ireland and Spain both recorded growth of 0.6%. Employment in the Eurozone is now at the highest level since 2009, although it is still lingering below the peak level experienced before the recession. Professional and support services were the biggest driver for growth, with a 3.2% rise in employment.
The EUR/GBP exchange rate is currently trending up 0.2% in the region of 0.7262.
GBP/EUR Exchange Rate Trends Down Despite Positive UK CPI Figures
UK inflation has met expectations, rising from -0.1% to 0.1% year-on-year (YoY), with the non-core index rising 0.1% to 1.2%. The monthly CPI remained flat at 0.0%, although this was better than the -0.1% contraction experts had predicted. Despite the positive result, Pound Sterling continues to trend down against the majority of currencies, sliding 0.2% against the Euro (EUR) and the New Zealand Dollar (NZD), while experiencing little movement in the negative range against the US Dollar (USD). Sterling’s only significant gain today is a rise of 0.3% against the Australian Dollar (AUD).
Although the data is positive news for the UK economy, the sluggish pace of inflation continues to worry experts. The Institute of Directors has warned that a rise in inflation would put companies under a lot of pressure to raise output as workers, who are currently enjoying a real wage increase of between 2.5-3%, demand a pay rise.
According to Michael Martins, the institute’s economic analyst: ‘Employees may begin to demand higher wage increases in cash terms once prices begin to go up and they feel the pinch on their disposable incomes. When this occurs, employers and staff will be under even more pressure to raise productivity to pay for sustainable wage rises.’
Business owners would seem to disagree, as Average Weekly Earnings for the previous quarter show a drop from 3.0% to 2.4%, while earnings excluding bonuses slid from 2.4% to 2.0%. The drop has likely been caused by employers taking into account the persistently low level of UK inflation, although slowing wage growth will curb consumer spending and therefore see inflation remain lacklustre.
The GBP/EUR exchange rate is currently trending between 1.3684 and 1.3791.
EUR/GBP Exchange Rate Forecast: Eurozone Data Dump Could Help Euro Dominate Pound Sterling
While the UK sees the release of employment data, including employment change and average weekly earnings, the Euro will benefit from Markit PMIs and Consumer Price Index figures. With much more data at hand, the Euro could gain significantly, although a crash may be on the horizon with the US Federal Reserve interest decision likely to send waves through the markets.
The EUR/GBP exchange rate is currently trending between 0.7248 and 0.7302.