Euro continues to struggle as attention turns to interest rates

Claire Hogarth23/Sep/2014Currency Updates

GBP

The UK currency strengthened for a fifth day against the Euro, appreciating by 0.2%, and inching towards the two year highs set in July 2012. A weakening Eurozone economy has prompted many economists to suggest that this trend will continue and that this high may well being breached within the coming weeks. The Governor of the Bank of England, Mark Carney, will be speaking in Wales this week as investors focus has firmly turned to the timing of the interest rate increase in the UK, after the uncertainty surrounding last week’s Scottish referendum evaporated.

Sterling has also recovered ground on the Dollar after weakening in the closing stages of last week, appreciating by 0.3% and against all but one of its 16 major peers. The Bank of England is generally expected to be one of the first major central banks to increase interest rates; the market consensus predicts a hike in February 2015, revised from the November 2014 estimate.

EUR

The Euro has once again struggled, weakening by 0.3% against the greenback and falling to fresh 14 month lows following on from remarks by President Draghi yesterday that the Eurozone had “lost momentum” and that unemployment remains “unacceptably high”.

Speaking in Brussels, Draghi assured the Eurozone that the ECB is ready to use unconventional monetary tools in order to support the European economy following on from disappointing figures coming out of the TLTRO programme last week. The ECB is in the midst of starting a transitional period to a more active and controlled management of the balance sheet. Inflation, however, is expected to remain at low levels in the final months of 2014 before gradually increasing through 2015 and 2016.

No major announcements within the Eurozone this week but the Manufacturing PMI, an index capturing business conditions in the manufacturing sector, will be released tomorrow. This figure has suffered a gradual decline since February but a result above 50 is expected which will be bullish for the Euro.

USD

Greenback started the week on the back foot having fallen against Sterling by 0.3%, yet the Dollar index remains marginally shy of its highest level since the summer of 2010.

In spite of the strong position the US currency currently finds itself in, FOMC vice-chair Dudley announced in New York that the Fed are in no rush to move rates in the light of passive inflation expectations and weak global growth. He stated that, while movement away from near zero rates as soon as possible would be desirable, the central bank will wait for clearer signs of economic strengthening before taking any action.

Economic announcements of any key significance within the US are also limited this week. The US will, however, be releasing its housing price index for July at 2:00pm today London time.

Rest of the world

Another bad day for the Australian Dollar as the currency fell to a seven month low amid a slump in prices for raw materials. The Bloomberg Commodity Index declined to its lowest level since July 2009, due to slowing growth in China and the normalisation of US monetary policy. AUD depreciated by 0.7% against USD, its lowest level since early February, and by 0.9% against the Euro, compounding further misery on a currency that has weakened by 5% versus the Dollar in September and by 20% since July 2011.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.