Euro Troubled by Weak Economic Environment

Euro Stages Comeback Against the Pound at the End of This Week's Trading

The euro continues its poor run into mid-week, with a series of undesirable economic data releases under its belt. The EUR/GBP exchange rate is heavy and proceeds to extend the downside for the first half of the week. However, with the Eurozone’s current weakness, it may lend a helping hand for the troubled economy as the ECB has a very limited scope for ease, so exchange rate weakness is welcomed, particularly in Germany. Meanwhile, GBP remains very Brexit-focused, with a rank cut due sometime this year according to the market. A lack of reassurance was heard from the Bank of England’s Jonathan Haskel yesterday, closely followed by the BoE’s Mark Carney who couldn’t lift spirits either.

Recent Weak Run Sees Euro on the Backfoot, but Weakness May Turn Into Strength for Eurozone

The Eurozone’s economy has struggled to produce positive figures over several sets of data releases, which has landed the currency trading lower and allowing the pound to edge over it. With German manufacturing and industrial orders falling, the Eurozone has suffered. However, the market has suggested that this weakness, could lend a helping hand to the dreary economy, as the ECB has very limited scope for easing, therefore exchange rate weakness may be welcomed with open arms. On a more positive note for the euro, services PMIs for January were revised up from their initial 52.2 estimate to 52.5. This has alleviated some concerns regarding negative spill overs from the manufacturing sector – one that is bottoming out at the moment.

Brexit Remains GBP’s Main Priority, but Echoes of a BoE Rate Cut Fill the Air

The GBP’s prime mover will continue to be the Brexit saga, and until December the outlook for the pound looks to remain volatile. The Bank of England hasn’t helped out GBP in recent days following their own set of data release nightmares. The BoE’s Jonathan Haskel gave a speech yesterday which saw him deliver in a dovish tone. He noted that the current limited room on monetary policy means he continues to prefer to move now on rates. He was one of two members of the monetary policy committee who voted in favour of a rate cut in last months rate cut decision. Added to this, the BoE’s governor Mark Carney spoke before the House of Lords yesterday and expressed how interest rates are going to be relatively low for the foreseeable future, adding that we should be proving some stimulus to bring the UK economy back to the trend rate of growth.

Yesterday also highlighted that the EU will reject a demand from the UK to guarantee banks access to EU markets, this got investors attention. Furthermore, there was an admission from the Cabinet Office that a new ‘smart’ border between the UK and the EU will not be ready until 2025 also concerned many.

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