Trade tensions with the US and indeed the face off with the UK over Brexit have conspired aggressively since the start of the year to seriously dampen business confidence within the bloc. In fact, Chancellor Angela Merkel’s Government recently slashed their growth forecasts for Germany down to 0.5%, which if you compare to 2017’s recorded 2.2% level does go some way to highlight the pessimistic undertone currently cursing through the eurozone at present.
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The bigger picture does seem to be limiting investor appetite for the single currency as a result. Yesterday was a good reflection of this. Despite industrial output in Germany surprising the markets with a pick up of 0.5% for March, the euro still failed to make any sizeable inroads against it’s major currency counterparts.
It will be interesting to see how the markets react to respective releases from Spain today and indeed Italy tomorrow morning. Both countries have been through their fair share of political uncertainty recently so a slow down in industrial output could be on the cards.
With the euro block showing consistent signs of frailty since the start of the year, the markets have gradually been piling pressure on the European Central Bank (ECB) to realign its inflation target and indeed its monetary policy with the current geopolitical challenges the EU is faced with.
However, speaking yesterday afternoon, president of the ECB Mario Draghi once again knocked down any push for short term fixes to appease market jitters. In theory, Draghi’s push back is justified as it would be much harder for investors to buy into the euro long term if the ECB didn’t stand by its own policies consistently.
In practice however, this stubborn stance could well be a signal that any significant changes to the ECB’s outlook moving will be unlikely to change before Draghi’s tenure comes to an end in the autumn, potentially resulting in a lack of appetite for the single currency in the coming months.
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