Recession concerns materialise after weak Eurozone production data is released

Claire Hogarth08/Oct/2014Currency Updates

GBP

Sterling rose against the Euro by the greatest amount in two weeks on Tuesday morning after manufacturing grew in the UK for the third month in a row in August by 3.9%, half a percentage point more than economists had anticipated. This figure is closing in on its highest level since April 2011 and gives further evidence that Britain’s recovery is outpacing that of the Eurozone. Production YoY also experienced an increase, although slightly below expectations at 2.5%. Despite this, the Euro was able to recover strongly, finishing the day 0.1% up.

After posting its biggest gain against the Dollar in two weeks on Monday, the Pound lost ground on the greenback during trading and fell by 0.2%. This after the UK GDP estimate for September came in slightly below last month, falling from 0.8% to 0.7%. This data, released by the National Institute of Economic and Social Research, is a driving force behind the UK monetary policy and thus the BoE interest rate decision.

EUR

A volatile days trading for the Euro against both GBP and USD saw the single currency eventually fall overall on the two major currencies after an up and down day.

The Euro suffered a blow in early trading, falling initially by 0.4% and edging back towards a two year low on greenback after as it was announced Europe’s largest economy suffered a drop in Industrial production in July. The data for Germany showed that industrial production fell by 2.8% YoY, the greatest since January 2013, and by 4% MoM, the largest month on month decline since the height of the financial crisis in March 2009.

The shared currency did, however, recover well as the afternoon progressed, finishing trading 0.2% up on the Dollar. The continuously dire data emerging from the Eurozone does, however, raise serious concerns that the Eurozone may well be sliding into negative growth and potentially back into recession.

USD

The US Dollar Index stabilised yesterday after the greenback suffered its worst decline against its major peers in over 12 months on Monday. The index, which measures the US against its major currency peers, fell by 0.1%. No significant data releases during London trading, however, both the Redbook index, a measure of sales growth, and the Jolts job openings survey, a measure of jobs vacancies, revealed advances on the previous month by 0.9% and 5% respectively.

A big day for the Dollar tomorrow as the Federal Reserve will be releasing its minutes from its September meeting at 7:00pm London time. The mixed messages coming out of its policy meeting last month are expected to be evident in the minutes, with traders hoping to gain an insight into the degree of hawkishness within the central bank. While it is clear the labour market has shown significant improvement, the actual rate of inflation remains well below its 2% annual target.

Rest of the world

Russia’s central bank has spent over $1.68 billion in the last two days, its largest intervention since President Putin’s incursion into Ukraine in March. The Bank of Russia is looking to prop up the Ruble after ending a five month pause of selling foreign currency due to the weakening of the currency in recent months. The Ruble has lost 16% of its value against the Dollar in the past three months since the start of July.

Protests appear to be winding down in Hong Kong as the city’s government agreed to talk with the students that instigated the demonstrations that began almost two weeks ago. The Hong Kong Dollar posted its biggest three day gain against the greenback since 2012.

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Written by Claire Hogarth

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