The euro performed reasonably well for the early part of this week, strengthening steadily against its major peers before appreciating more sharply in the wake of Thursday’s European Central Bank (ECB) press conference. The single currency performed particularly well against sterling, even pushing rates back below the 1.20 level on Thursday afternoon. However, data was perhaps more mixed than performance would suggest, with the services purchasing managers’ index (PMI) figures coming out shy of market estimates while retail sales figures disappointed, showing that trade was down by 1.6% month-on-month.
On Thursday ECB President Mario Draghi refrained from reducing interest rates further or implementing any additional stimulus. Draghi had a number of options open to him including lowering interest rates and starting to implement further long-term refinancing operations, both of which would have impacted negatively upon the performance of the eighteen-nation currency, and he chose to take no action. This reluctance to act has certainly supported the euro in the short term; however, long-term fortunes will be dependent on whether the pressures on Draghi to act – namely, low inflation and mixed productivity figures – wane in due course or will require intervention.
In the short term, German trade balance data and monthly industrial production figures released today have the potential to impact euro performance.
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