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Euro steady as Eurozone beats forecasts
European Central Bank to continue current monetary policy despite Eurozone economy accelerating slightly in October.
Request a quoteThe pound to euro interbank exchange rate broadly held its ground this week. In part because the financial markets are awaiting the result of the UK’s general election, and its effect on Brexit, before deciding whether to buy or sell the pound.
Turning to the Eurozone meanwhile, this week’s economic data exceeded expectations, although it’s worth adding that the common currency bloc remains close to stagnating.
Meanwhile, the new President of the European Central Bank (ECB), former IMF (International Monetary Fund) chief, Christine Lagarde, gave her first speech.
Unsurprisingly, given that Eurozone interest rates are already at 0.0%, Ms. Lagarde called on Europe’s governments to spend more, to support flatlining economic growth.
Eurozone composite PMI rises to 50.6, ahead of predictions
IHS Markit composite PMI for the Eurozone, encompassing the bloc’s services and manufacturing activity, rose by 0.4 points in October to 50.6.
This tells us that, in spite of the headwinds facing the euro area, including Brexit, the US/China trade war and Germany’s nearing recession, the Eurozone eked out greater growth heading into the last months of this year.
In particular, it’s thought that both France’s and Spain’s economic activity surprised positively in October, thereby partly compensating for Deutchland’s continuing downturn.
However, to put this into perspective, the euro bloc’s activity remains very close to the 50.0 that separates growth from contraction, thereby signalling meagre growth so far in Q4. Looking forward, this may affect the euro.
Lagarde takes up reins at ECB and calls for greater spending
Meanwhile, the well-regarded Christine Lagarde has begun her stint as President of the ECB.
The Eurozone’s benchmark interest rates already stands at 0.0%, while the deposit rate is at minus 0.5%, with the ECB injecting €20 billion a month of Quantitative Easing into the economy.
So Ms. Lagarde’s toolbox to further support the Eurozone looks bare. Instead, it’s thought that the former IMF chief will take an unconventional approach to shore up Eurozone growth, by appealing to the bloc’s richer northern members to spend more.
Already, in Ms. Lagarde’s first speech as ECB President, she’s called for more fiscal easing, an economics term for governments to loosen their purse strings. We’ll see if Ms. Lagarde’s appeal succeeds, and its effect on the euro, looking forward.
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