Euro sinks to lowest level in nine years as Greek elections loom

Enrique Díaz-Álvarez06/Jan/2015Currency Updates

GBP

2015 has not started well for the UK currency. Sterling plummeted substantially last week amid a slowdown in manufacturing growth and the housing market, spurring bets that the Bank of England will delay its interest rate hike. The Pound fell further on Monday by 0.5% against the strengthening Dollar, reaching a seventeen month low.

The December Construction PMI fell to just 57.6, down from 59.4 last month, although still comfortably above the level of 50 that denotes growth. New business growth moderated to its lowest in four-and-a-half years, with the civil engineering sector reporting a fall in output for the first time since May 2013. Despite this, 2014 marked the best year for housebuilding since Markit began collecting data in way back in 1997.

More PMI data out today with the release of service sector growth for December at 9:30am, while the Bank of England will release its Credit Conditions survey, also at 9:30am.

EUR

Much like Sterling, the Euro has struggled so far this year, sliding by 0.3% yesterday to nearly a nine-year low versus the Dollar amid expectations that the ECB will act to stimulate the economy at its Jan 22 meeting.

Political turmoil in Greece continues to weigh on the Eurozone as the possibility that the anti-austerity Syriza party will take control and leave the Euro looms. On Monday the French President Francois Hollande stated that it was for Greece alone to decide. Elsewhere, German inflation weakened substantially in December, teetering close to deflation at an annualised 0.2%, its lowest level since November 2010. The reading was lower than expected as prices remained stable month on month. This comes on the heel of price declines in Spain and Cyprus last week and is likely to put further pressure on Mario Draghi to inject additional stimulus at the next ECB meeting.

Euro movement today will mostly be fuelled again by Greek politics and ECB speculation. The main data releases will come from Markit with the announcement of services sector growth figures for Euro-area countries during morning trading.

USD

The Dollar continues to go from strength to strength. The US Dollar index reached its strongest position in nine years as the Federal Reserve continues to edge closer to an interest rate hike.

Limited data out of the US on Monday failed to stop the Dollar’s rise. Nervousness surrounding the Euro has led to safe haven flows into the US Dollar which has caused the greenback to climb against the bulk of its major counterparts so far in 2015. The only data release of any note was that of New York City business activity, which grew at a faster pace in December, with ISM’s New York index climbing to 70.8 in December, up from 62.4.

A busier day in the US today as far as data releases is concerned. The main focus among traders will be ISM’s Non-Manufacturing PMI for December and Factory Orders, both of which are at 3pm GMT.

Rest of the world

The Brazilian Real fell by 1.2% yesterday, increasing its three month decline to 8.8%. This was after economists raised their estimate for inflation to 6.56% and cut their growth forecasts to 0.5% from 0.55% for 2015. Elsewhere, the Russian Ruble continued where it left off in December, weakening as oil prices extended their run of declines, falling perilously close to $50 a barrel.

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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.