It’s been heavily documented in Foreign Currency Direct plc market reports that there are problems in the Eurozone. Italy is suffering from its fifth recession in 20 years, due to the slowdown in the car industry in Germany the power house of Europe only narrowly escaped recession towards the back end of last year, the ECB’s 0% interest rate policy and quantitative easing program appears to have worn off and Brexit is a concern for the countries that export to the United Kingdom.
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For the last three months of last year, the European economy grew at its slowest pace in 4 years which forced the European Central Bank (ECB) to act. The ECB announced last month that they would be keeping interest rates at 0% for the time being which was no surprise, but would also be starting Target Long Term Refinancing Operations (TLTRO) part 3, starting in September 2019 and finishing at the end of March 2021. The program provides cheap loans to banks which in turn means the banks can provide better credit conditions for the consumer in a bid to stimulate growth.
The last TLTRO program came under scrutiny as it appeared that the ECB gave more money to the underperforming countries. For example. Italy and Spain held 56% of the 724 billion euros still outstanding according to Reuters last month. The strategy used by the ECB is a risky one. There is a strong argument to suggest the program will help growth however countries are going to get into more debt and this I believe may cause the euro to come under pressure towards the back end of the year.
In other news, to finish the week Markit manufacturing numbers are set to be released this morning. A slight rise is expected, which is positive news for the euro. If this materialises the euro may be more expensive to buy as the morning goes on.
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