Euro strengthens after European Union growth forecasts were slashed

Claire Hogarth05/Nov/2014Currency Updates

GBP

A mostly stable day for the UK currency saw the Pound finish unchanged on the US Dollar but fall by 0.35% on the Euro after declining sharply in late afternoon trading following weak construction data.

Business conditions in the UK construction sector unexpectedly declined in October to its lowest level in five months it was announced yesterday. Tighter mortgage lending conditions and “renewed uncertainties” in demand caused home buildings to slow sharply, with the construction PMI 2.1 index points below forecasts at 61.4. The construction sector has now, however, expanded for 18 months in a row, its longest run since the start of the financial crisis in 2007.

More house price data out in the UK today, this time from Halifax, who is expected to echo the view of Nationwide from last week that the growth in UK house prices is slowing.

EUR

The single currency appreciated against both of its major peers on Tuesday, climbing 0.3% on the Dollar and by 0.35% on the Pound.

As we predicted yesterday, the European Union commission sharply lowered its growth forecasts on Tuesday amid a gloomier outlook for both 2014 and 2015. The commission slashed growth expectations for the Eurozone to 0.8%, down from its spring forecast of 1.2%. A lack of improvement in the economic and employment situation were to blame, with weak economic performance in France, Germany and Italy lowering overall business confidence in the area.

Meanwhile, the Producer Price Index for the Eurozone showed a surprise improvement in September, increasing MoM by 0.2%, matching its largest month on month climb since March 2013. The annualised measure of PPI, while showing a fourteenth consecutive month of declines, came in above expectations at -1.4%. Although, the Spanish Government announced that the change in unemployment was far greater than expected in the country in October, shooting up by 79,200.

A number of significant announcements in the Eurozone this morning with services PMI data from Markit Economics followed by the Retail Sales data from September at 10am London time.

USD

A day of stabilisation for the US currency ends with the US Dollar Index falling late on to finish 0.2% down for the day.

Data released by the US Census Bureau on Tuesday yielded a mixed outcome. The trade balance in the world’s largest economy registered a greater than expected deficit in September of -$43.03B, down $3B on last month. Despite this, robust economic growth throughout 2014 has helped push the overall US budget deficit to $483.4 billion for the twelve months ending September, its healthiest position since 2008. This marked the sharpest turnaround in the government’s fiscal position in the last 46 years, with the budget deficit now accounting for just 2.8% of GDP. Factory orders for September, however, fell month on month by 0.6%, although this was well up on August’s record decline of -10%.

The main data release of the day in the global markets, likely to cause the most volatility, will be the non-manufacturing PMI for the US at 3pm GMT.

Rest of the world

The Canadian Dollar fell by 0.4%, plummeting to a fresh five year low against the US Dollar after the price of crude oil fell by as much as 3.7% a barrel to its lowest level in three years. The currency’s drop was the fifth day in a row against its US peer, marking the longest run of declines since January.

In other news, the Thai Baht fell for a tenth consecutive day, its longest losing streak in over three years on concerns of a deteriorating economic outlook, while the Brazilian Real hit a nine and a half year low after a larger than expected drop in industrial production. Eclipsing all of that, however, was the Norwegian Krona, that registered the biggest decline of the day, having lost 1.3% of its value during trading. The currency slid to its weakest level since March 2009.

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Written by Claire Hogarth

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