Sterling strengthened versus the euro on the interbank market this week, at one point hitting a 31-month high, its strongest since May 2017.
However, turning to the Eurozone, the economy remains subdued, according to official statistics this week, thereby weighing down the bloc’s common currency.
In particular, the Eurozone’s industrial confidence and business climate figures disappointed in November, although the bloc’s services sentiment and economic sentiment indicators lightly exceeded forecasts.
Turning to today, the Eurozone’s inflation figures for November are released, while next week, the bloc’s GDP (Gross Domestic Product) figures for Q3, over the Summer, are due. These may affect the euro, if they surprise investors above or below predictions.
One reason why the euro lost value this week is because the Eurozone’s sentiment indicators for November were mixed. According to the European Commission’s releases for this month, economic sentiment in the bloc rose by 0.3 points to 101.3, while services sentiment gained 0.5 points, up to 9.3.
On the other hand, the euro area’s industrial confidence fell by 0.4 in November, to minus 9.2, while the business climate weakened by 0.03, down to minus 0.23. This suggests that the US/China trade war continues to decelerate the Eurozone’s manufacturing activity in November, thereby weighing on overall business confidence. Traditionally, low business optimism signals slower economic growth, and thereby decreases the value of the euro.
Turning to today, the Eurozone’s inflation is forecast to have risen by 0.2% to 0.9% in November, ahead of statistics due at 10.00 GMT. If so, this would be the first increase in the bloc’s price pressures in five months, and signal greater GDP growth, which may support the euro.
However, to put this into context, even at 0.9%, Eurozone inflation would remain well below the European Central Bank’s (ECB) 2.0% target. So the central bank looks unlikely to lift interest rates above 0.0% in the foreseeable future, nor end its extraordinary stimulus program of Quantitative Easing.
Next Thursday 5th December, the Eurozone’s GDP growth figures for Q3 are due, over the Summer, and forecast at 1.2%. A result above or below this figure may impact the euro interbank exchange rate.
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