Thursday 14 December 2017

Euro falls to three-month low on weak German data

Growth in European wages has slowed.
Growth in European wages has slowed.

Jamie McGeeve

The euro hit a three-month low against the dollar yesterday after a closely watched measure of German business confidence came in weaker than expected.

The Ifo business climate index fell in May to its lowest this year, following data that showed growth in the first quarter in Germany was its strongest in three years but gave a dimmer outlook for the coming quarters.

This raised expectations that the European Central Bank will ease policy next month, pushing the euro down to a three-month low and breaking long-term technical support that had held firm for almost nine months.

"The renewed fall in the Ifo in May suggests that the German recovery may be slowing.

"We expect annual GDP growth of about 2pc this year and next, which will not be strong enough to drive a rapid recovery across the eurozone or to eradicate the threat of deflation," said Jennifer McKeown, senior European economist at Capital Economics.

The euro was down a fifth of 1pc on the day at $1.3630, the lowest in three months and crucially below technical support at the 200-day moving average of $1.3636.

The euro has flirted with that support three times this week but has not closed below it. This could be the first day it has done so since early September last year.

Sovereign credit ratings upgrades yesterday for Spain and Greece had little impact on European markets as their respective economies have been improving for some time.

Investors were also reluctant to take on too much risk ahead of European election results and a presidential election in Ukraine this weekend, and because British and US markets are closed on Monday, which will dry up market liquidity.

Irish Independent

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