020 7898 0500The euro had a decent day against the dollar yesterday but it is still some way below what it was just ten days ago. What was such a promising start to the year for the single currency has suddenly lost momentum. A series of disappointing economic data releases are largely responsible, but so too is evidence of a strong US economy and the European Central Bank’s plan to keep interest rates on hold for the foreseeable future. Remember: ECB President Draghi favours a weak euro and often makes dovish statements that help the euro weaken; manage your currency exposure and suddenly you’re no longer at risk of such sentiment.
Speaking of the ECB, its monetary policy meeting accounts were released yesterday and showed that members believe an ample degree of monetary stimulus is still necessary for underlying inflation pressures to continue building up. The commitment to purchasing €30 billion net assets each month until the end of September was reaffirmed, and it might yet be extended beyond that. If that is confirmed soon, we could see some euro weakness. The markets want fiscal stimulus to be withdrawn, even if gradually, in signs that the global economy is in tip top shape, but the ECB remains dovish in this regard. That’s not to say it is wrong to do so (they’re the experts after all), but a rise in interest rates or withdrawal of quantitative easing would likely send the euro benefit. It won’t be happening anytime soon though.
Germany’s GDP growth rate held steady as expected at 2.3%, but Gfk consumer confidence came in slightly below expectations at 10.7 (it was expected to hold steady at 10.8). Today we will see the German Ifo business climate for May, but attention will be turned to the UK’s GDP growth figures.
