Euro gains after growth forecasts revised upwards

Enrique Díaz-Álvarez06/Feb/2015Currency Updates

GBP

Mixed data out across the pond caused Sterling to appreciate against the Dollar as it finished the day 0.6% up, its third straight day of climbs.

Unsurprisingly, the Bank of England held its interest rates constant yet again at its February meeting at its record low 0.5%. This marked an astonishing 71 straight months with no change to the benchmark rate. Last month the central bank voted unanimously to keep rates unaltered for the first time since July 2014 as the two “hawks”, Martin Weale and Ian McCafferty decided against hiking rates. We have since pushed back our forecast for the next interest rate hike in the UK to Q4 of this year. Also as expected, the level of quantitative easing, known as the Bank of England Asset Purchase Facility, was kept constant at £375 billion.

Thursday saw limited data out in Britain. House prices as measured by Halifax did, however, jump unexpectedly in January to record its biggest rise since May 2014. House price growth climbed by 2% month on month causing prices in the three month to January to soar by 8.5% compared to a year earlier, its highest yearly rise since October. A decline in mortgage rates, the reform in stamp duty and increases in real wages have provided a boost to the housing market in the past few months.

The main focus of the day will be at 9.30am this morning as UK National Statistics release its trade balance data.

EUR

Wednesday’s losses for the Euro were recovered on Thursday as the currency rose by 0.55% against the Dollar.

The European Union struck a far more upbeat tone on Thursday at the release of its winter forecasts. Despite the recent stagnation and slump of inflation into negative, growth forecasts were revised upwards from 1.1% in November to 1.3%. However, uncertainty over economic outlook, high unemployment and weak investment continue to undermine progress. Employment is expected to pick up towards the end of 2015, although “modest” levels of economic growth are expected to mean these improvements will be small. Elsewhere in Germany, factory orders rose much more than expected in December. The month on month figure climbed by 4.2%, boosting the annualised reading by 3.4%, its highest yearly climb since August. Figures suggest a stronger beginning to the year in the Eurozone’s largest economy, which narrowly avoided slipping into recession in 2014.

A number of smaller data releases in Germany and France will likely lead to moderate volatility in the Euro today.

USD

Mixed data out in the US yesterday caused the Dollar to fall against its peers, with the US Dollar index finishing 0.5% down.

The US trade deficit widened significantly in December to its highest level since 2012. A stronger Dollar appears to be weighing on imports and exports, causing the deficit to increase from $39.75B in November to $46.56B in December. This marked the biggest percentage increase since July 2009, and could lead to the fourth quarter growth estimate being revised lower. Initial claims for jobless benefits rose marginally last week, although remained strong enough to lower the more representative four week moving average by 6,500 to 292,750. While not quite at the same low levels registered a few months ago, the average shows no signs trending upwards. Continuing claims were up marginally by 6,000 to 2.4 million, although this data is reported on a one week lag.

An eventful end of the week for the US will see the release of Non-farm Payrolls at 1.30pm GMT, followed by the official unemployment rate.

Rest of the world

The Danish Central Bank once again slashed its deposit rate on Thursday as it looks to alleviate pressure on the currency. The rate was cut from -0.5% to -0.75%, its fourth reduction this year.

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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.