The euro continued to slouch towards the end of last week, despite seeing some rebounding earlier in the week. Some commentators attributed the single currency’s weakness on Friday to the selling of bonds issued by the members of the eighteen-nation bloc. Large-scale selling of bonds is usually reflective of a lack of faith in the economic state of an area, hence the weakening of the euro. However, it should be noted that rate movements were more limited than earlier in the week.
We are likely to see continued movement whilst key players continue to speculate on European Central Bank (ECB) President Mario Draghi’s next move. A rate cut at the next meeting in early June should cause euro weakness. Equally, the commencement of an asset-purchasing programme is likely to cause movement in euro rates. However, the exact effect of either will depend on to what extent these are ‘priced into the market’ beforehand. In this way, speculation and market chatter may play a key role over the next week, and we could see continued fluctuations. In terms of key data releases this week, traders will be watching out for German and French manufacturing data on Tuesday, as well as German Business Climate data on Friday which are expected to show improvement albeit small.
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