The Eurozone has recently been suffering, most likely from a weakening of its manufacturing sector. In particular, Germany and its manufacturing industry has been hit heavily with the latest reports from the Financial Times showing that the Institute for Economic Research (IFO) manufacturing business climate index is showing a significant fall with a reading of minus 4.3%, following a 1.3% increase from the month prior.
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This statistically is the worst level the industry has seen in 9 years and has not seen the recovery that had been predicted for the manufacturing industry. With the added pressure the EU has been under recently with UK negotiations, there has even been stipulation that Germany may be headed for a recession.
Despite the euro being very strong in comparison to the pound with 2-year highs, this is not so much due to euro is strength, but more likely due to the confidence in the pound.
With the uncertainty surrounding Brexit and the recent confidence that Boris Johnson is bringing with his potential no deal strategy, the Eurozone may have to make a troubling decision to try and encourage the UK to arrange a trade deal that can worthwhile for both sides.
Indeed, the EU has certainly got a tough road ahead and will need sound economic and political decision making in order to weather the storm.
This comes after the European Central Bank (ECB) left the Interest/ Deposit rate unchanged at 0% which suggests negative projections for the economic stability of the Bloc.
Next week is quiet in terms of economic data, so it’s likely that euro movement will be caused by Brexit developments and news headlines.
Last Wednesday saw the important release of the Eurozone’s Gross Domestic Product (GDP) for Quarter 2 which recorded a fall from 1.2 down to 1.1%. Whilst economic expansion is still occurring within the Bloc, growth is slow which shows the strain that Brexit is having on investor confidence.
However, European markets responded better than expected to the slowing growth as the figures fell in line with expectations predicted by investor companies.
For clients holding euros, you may wish to get in touch with your account manager here at FCD to see how we could limit your exposure to the euro market.
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