Monday 19 February 2018

Euro stuck near nine-month low after dismal eurozone and German data

euro banknotes
euro banknotes

The euro hovered near nine-month lows against the dollar on Thursday, hurt by dismal data from Germany and France that cast further doubt over the eurozone's recovery and adds to expectations of more stimulus from the European Central Bank.

Germany's economy unexpectedly shrank by 0.2pc in the three months to June while France managed no growth for a second straight quarter. Italy, meanwhile, has slid back into recession for the third time since 2008.

The euro fell to a day's low of $1.3348 after the German data, close to the low of $1.3333 hit earlier in the month EUR=. It slightly recovered afterwards to trade at $1.3365, flat on the day.

"The overall picture is one of weakness coming from Europe and that's going to keep the euro very much under pressure," said Ian Stannard, head of European currency strategy at Morgan Stanley in London.

"That highlights the divergence we're seeing in the G10, with disappointing data coming from most countries with the exception being the United States, and that's going to keep the dollar supported across the board."

The GDP number for the euro zone as a whole is due at 0900 GMT and forecast to show anaemic growth of 0.1 percent on the quarter. Given the reports from member states already in, even that is unlikely to be achieved.

And separate numbers on Wednesday showed a surprise fall in euro zone industrial production in June.


Sterling also struggled, hitting a four-month low of $1.6657

The pound was on the defensive after the Bank of England surprised investors on Wednesday by signaling it was in no hurry to raise interest rates.

Wrong-footing the market again, Governor Mark Carney indicated on Wednesday that wage developments would be key to the exact timing of a rate move as the BOE slashed its forecast for wage growth.

Yet just a few months ago, Carney made sterling jump by warning investors that they were not sufficiently pricing in the chance of an early increase in record-low rates.

Given the shift in Carney's comments, it may be difficult to find reasons to buy the pound, said Masafumi Yamamoto, market strategist for Praevidentia Strategy in Tokyo.

"I think we could start to see people chase the current momentum and aggressively build short positions," he said.

A better-than-expected rise in New Zealand's second quarter retail sales helped give the kiwi a small fillip, pushing it to a one-week high of $0.8490 NZD=D4.

The New Zealand dollar last traded at $0.8484, up 0.3 percent for the day.

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