Euro Weekly/End of October Update

Euro weekly update

The Euro remained little changed from the end of last week as currency markets consolidated their position ahead of the US presidential election on the 8th November. There seems little chance of any change in stance from the Central Banks prior to this date. Market volatility was much reduced this week from previous recent levels.

The single currency has been under pressure recently as investors appear to have come to the conclusion European Central Bank President Mario Draghi will extend monetary stimulus in December, just as the Federal Reserve raises interest rates. The ECB continue to ‘kick the can’ further down the road as any immediate tapering of its QE program is thought to be very unlikely.

The Euro has, however, maintained strength against continued to dominate the Pound. Comments from British Chancellor Philip Hammond on the potential for further GBP monetary stimulus providing no respite for sterling. The UK Chancellor said that he was willing to authorise further quantitative easing from the Bank of England (BoE) should they feel it was necessary.

The pound did manage to gain territory versus the Euro on Thursday morning following stronger than forecast UK GDP data. This bounce, however, was short lived as the pound returned to previous levels within a few hours of the release.

UK GDP was estimated to have increased by 0.5% in Quarter 3 (July to Sept) 2016 compared with growth of 0.7% in Quarter 2 (Apr to June) 2016. GDP was 2.3% higher in Quarter 3 2016 compared with the same quarter a year ago. These figures were above the market expectations and originally gave a boost to the ‘under-fire’ pound. This is the first release of GDP covering a full quarter of data following the EU referendum. The pattern of growth continues to be broadly unaffected following the EU referendum with a strong performance in the services industries offsetting falls in other industrial groups.

We are a week away from the Federal Reserve’s November policy meeting, but it appears very unlikely we’ll see any significant change in Central Bank monetary policy. There are two reasons for this. Firstly, with US Presidential elections less than a week later (Fed meets on November 2; US elections on November 8), policymakers will not wish to spook the markets and risk increased volatility. Secondly, the Fed rarely acts without ‘justification’ and the next summary of economic projections will not be released in December.

According to the latest IFO report, German business sentiment rose to the highest level in more than two years in October, signalling renewed growth momentum in Europe’s largest economy.

CONTACTHenry Bliss on +44 203 823 0203


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