The single currency forced sterling to surrender most of its gains from the start of the week with investors pulling back from the pound as Boris Johnson pushed out another leadership speech at the Conservative Party Conference yesterday. The euro report below discusses the economic data from within the bloc, as well as Brexit uncertainty in the UK leading to euro strength.
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More importantly, it was interesting to see the euro gain further momentum as the latest Producer Price index surprised the markets with an impressive jump to 4.2%. Because of how the European Central Bank have highlighted inflation as a key area of concern for them to adopt a more ambitious monetary policy stance, I feel yesterday’s release may well have provided some underlying value to the single currency and could prove pivotal a little further down the line.
As the week goes on however, I am not entirely convinced the euro will continue to hold its ground. This morning’s fairly flat Markit PMI reading has further justified the growing concerns of a slowdown in growth within the EU bloc. If the Retail Sales release follows suit from the disappointing levels posted by France (level) and Germany (-0.1%) last week, euro holders might want to brace themselves for a reverse in trend against them.
To further compound these worries, we are currently witnessing a number of rebellious outbreaks from political figureheads across the bloc. Although these are unlikely to shake rates in the short term, political cracks rarely go unnoticed by the markets and can sometimes force investors to question their exposure. It is worth keeping them in mind if you have a mid-term currency requirement.
In Italy, the divide between Brussels and Rome seems to have widened further. Deputy Prime Minister Salvini called out leading EU Heads’ lack of judgement as their criticism of Italy’s latest budget plans lead to a considerable fall on the Italian financial markets.
Salvini said Italy will commit to seeking legal compensation for the lack of foresight and showed very little desire to change his stance to comply with the EU Bureaucrats' demands.
Another senior law maker, Claudio Borghi even suggested it may be time for a national currency to be readopted.
This combined with the Catalonian Parliament going against the EU’s demands to suspend pro-independence politicians, it is only natural that certain segments of the market are beginning to question the EU’s authority over it’s members. I wouldn’t be surprised to see this anchor the euro's value if this trend begins to take hold.
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