EUR: Mixed economic and political tides sees euro ebbing and flowing

This week the Eurozone has followed the trend of the developed world with political events driving markets, despite influential economic indicators being released. Monday saw money supply data for the bloc come in slightly worse than expected. Tuesday saw German consumer price data come in flat, and the EU-wide figure also came in flat on Wednesday (although German retail sales showed an improvement on the forecasted figures).

Yesterday saw Spanish and Italian manufacturing PMI data beat expectations, with the French and German equivalents meeting their expectations. The day was dominated, however, by an apparent meeting of minds from both sides of the English Channel; messages from both David Davis and EU politicians suggesting that Brexit could well still leave Britain a member of the single market, which led to a rapid fall in the euro’s value against the pound.

Today we only have Spanish unemployment data to look forward to, leaving investors to focus their attention on Italy’s constitutional referendum on Sunday. A vote in favour of reform (supported by Italy’s government) will likely see the euro strengthen, but a vote against reform will see the euro weaken. Italian Prime Minister Renzi has suggested he will resign if this is the case, which could likely see significant euro weakness.