The pound to euro interbank exchange rate hit a six-month high this week, although it’s since declined, as markets worry that next month’s UK election may deliver a ‘hung’ Parliament. Turning to the Eurozone, it’s been a quiet week for economic data, which just September 2019’s construction output arriving at minus 0.8%, below forecasts.
That said, a number of European Central Bank (ECB) policymakers have given speeches, in which they acknowledge the euro area’s economic slowdown, yet forecast that the bloc will avoid recession. Meanwhile, new ECB President Christine Lagarde has called for Eurozone governments to spend more.
Both ECB Chief Economist Philip Lane and policymaker Gabriel Makhlouf made remarks this week, in which they acknowledged that, while the Eurozone economy has slowed, the bloc may avoid contracting.
In particular, Mr. Lane told Italian newspaper La Repubblica that “The economy is growing less quickly than what we hoped. The dynamic is disappointing but not negative. We expect a recovery in the next year or two.”
Meanwhile, Mr. Makhlouf said at the Waterford Institute of Technology in Ireland that “In the euro area we are also seeing protracted weakness, but both hard and soft data for the second half of the year point to continuing, moderate growth”. So both ECB executives expect the Eurozone to continue to expand, which may affect the euro.
Turning to today, and following her deputies’ remarks, new ECB President Christine Lagarde has delivered her first major speech as head of the central bank.
Ms. Lagarde pushed the Eurozone’s governments to “innovate and invest”, to strengthen the bloc’s slowing economic growth. It’s thought that Ms. Lagarde’s remarks are directed toward the bloc’s more solvent countries, like Germany and the Netherlands. If her appeal succeeds, this may favour the Eurozone’s future GDP (Gross Domestic Product) outlook.
The ECB’s interest rates look set to remain at 0.0%, while the central bank engages in extraordinary monetary stimulus called Quantitative Easing (QE). Ms. Lagarde said that the ECB would "achieve its goal faster and with fewer side effects" if governments spent more.
Looking to next week, key releases include next Friday’s Eurozone inflation data for November. This is forecast at 0.7%, well below the ECB’s official target of close-to-but-below 2.0%, which may influence the euro’s value.
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