Encouraging Eurozone growth data can’t stop Euro decline

Enrique Díaz-Álvarez24/Νοέ/2015Currency Updates

Currency markets were relatively quiet as they opened for the week on Monday, with traders continuing to await the ECB’s December monetary policy meeting and US labour report next week. These are causing serious concerns for businesses, with a high risk of volatility.

Businesses exposed to the Euro are currently examining their risk levels as the currency has experienced a prolonged downward trend. The Euro dipped marginally again during the London session, having touched its lowest level against the US Dollar since April during the Asian trading session. Investors seemingly overlooked impressive PMI growth indices in the Euro-area, instead focusing on the ECB, which looks set to send the Euro lower by expanding monetary stimulus next week.

For many businesses this is the time of year to review their plans for the year ahead. If current trends continue, businesses with Euro-exposure and no sufficient currency risk management in place could be exposed to high levels of risk in 2016.

Meanwhile, Sterling was little changed from its three-month high on a trade-weighted basis, trading within a narrow band as markets await a parliamentary testimony today by Bank of England Governor Mark Carney and other policymakers, including chief economist Andy Haldane. The key to the near-term evolution of the Pound continues to be the timing of a UK rate hike, which is now not expected to take place much later than originally anticipated.

In the US, the latest manufacturing PMI disappointed on Monday ahead of the revised growth data for the third quarter of the year, to be announced this afternoon.

Major currencies in detail:


Possibly due to a lack of any major announcements in the UK, the Pound was little changed yesterday, finishing the London session 0.1% lower against the Greenback.

With no data or announcements to digest, traders looked to economic events later in the week. On Wednesday, Chancellor George Osborne will be presenting the Autumn Budget statement, although this is generally not a significant market mover as far as GBP is concerned.

Revised growth figures on Friday could cause moderate Sterling volatility, although only if there is a sizable positive or negative revision to the numbers.

Attention will be more firmly fixed on today’s testimony from Bank of England members at parliament. Traders, as always, will be looking to gains clues from policymakers regarding the timing of a next interest rate movement. The central bank recently cooled expectations, with markets now not pricing in a hike until early 2017, although we still think this is slightly late.


The single currency dipped yesterday afternoon, although ended little changed, just 0.1% down against the US Dollar.

There was some very encouraging growth data in the Eurozone yesterday, which defied much of the recent economic news we’ve had out of the Euro-area. Overall business activity increased at its fastest pace since mid-2011, despite a moderate slowdown in France this month as a result of the attacks in Paris.

The flash manufacturing PMI rose to a four-year high of 54.4 from October’s 53.9, boosted by impressive growth in Germany. Meanwhile, the services PMI also rose to 54.6 from 54.1, well above expectations. Traders, however, overlooked the data, with the Euro barely moved as a result.

Traders also appeared to disregard comments from senior ECB member Lautenschlaeger, who argued against expanding the central bank’s QE measures, claiming she saw no reason to extend the programme.


Yesterday proved to be another solid session for the US Dollar, which rallied in the afternoon to finish 0.15% higher against its major peers.

Underwhelming data in the US yesterday did little to stem the Dollar’s charge.
Manufacturing growth came in below expectations for the first time since August, dipping from a PMI of 54.1 to 52.6. This marked its lowest reading in two years, with the manufacturing industry still suffering from weak global demand and a strong US Dollar.

There was more bad news on the housing front. Existing home sales, a key gauge of overall housing market strength, declined by 3.4% in October to 5.36 million. Markets now appear to be focusing almost entirely on Fed communications ahead of the central bank’s December meeting.

A string of economic announcements in the US this afternoon will be in focus for traders. Third-quarter growth at 1:30pm is expected to be revised upwards to 2%, and provide further weight behind a December Fed rate hike.


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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.