Eurozone inflation remains negative despite improving in February

Enrique Díaz-Álvarez03/Mar/2015Currency Updates


Strong manufacturing growth was not enough to prevent the Pound falling against its major peers as markets opened for the week, down 0.25% on the Dollar and 0.3% on the Euro.

Manufacturing growth in Britain hit a seven month high last month after the latest PMI climbed a full index point to 54.1, comfortably above forecasts. The data released by Markit suggests that output in the UK manufacturing sector is growing at a quarterly rate of around 0.5%, marginally stronger than the 0.2% recorded in the final three months of last year. The uptick was mostly reliant on domestic demand and the manufacture of consumer goods. Elsewhere, house prices in the UK fell for the first time in five months by 0.1% in February according to research by Nationwide. Price growth remained positive on an annualised basis, although slowed for a sixth consecutive month to 5.7%, its lowest level since September 2013. In other releases, mortgage approvals rose to 60.8K and net lending to individuals rose to £2.4B.

A quiet day in terms of data in the UK economy today, with the only release of any note that of construction growth at 9:30am.


Some mildly encouraging inflation and unemployment data from Eurostat on Monday suggests a moderate turnaround in the fortunes of the Eurozone economy. Despite dropping off during afternoon trading, this was enough to cause the single currency to rise by 0.1% against the greenback.

Despite remaining negative, inflation inched upwards last month, as prices fell slightly less than expected. The consumer price index for February registered -0.3%, a moderate improvement on the six year low reached in January. Oil prices remain stubbornly low, with energy prices in the Eurozone 8% down on this time last year. The core inflation level, which excludes volatile priced products such as energy, remained at 0.6% last month. While still worryingly low, a stable core rate should provide mild encouragement for policymakers.

Unemployment fell for a third straight month in January to its strongest position since mid-2012 at 11.2%. The number of people out of work fell by 140,000 in absolute terms, having registered 11.3% in December. Whilst an improvement, the double figures unemployment rate remains high. Elsewhere, Eurozone manufacturing growth was flat last month. Markit’s PMI was constant at 51.0, representing very mild growth. A moderate uptick in German and Italian activity was offset by a sharp fall in the French PMI which declined to 47.6, its tenth consecutive month of contraction.

Mostly second-tier data set for release in the Eurozone today, with market focus on German retail sales at 7:00am, followed by the Eurozone’s producer price index at 10am, both London time.


Mixed data across the pond caused the US Dollar to climb on its peers, with the US Dollar index 0.1% up for the day.

The pace of growth in the US manufacturing sector declined last month to its slowest since January 2014 according to the Institute of Supply Management. The PMI came in below forecast at 52.9, after the new orders and employment indices both declined. In contrast, the same measure from Markit was revised upwards to 55.1. Both still represent expansion and are consistent with growth of around 2.5% or better this quarter. In a separate report, construction spending unexpectedly fell by 1.1% MoM, its greatest monthly decline since February 2013. Personal spending and income both disappointed at -0.2% and 0.3% respectively, while the core personal consumption expenditure index remained at 1.3%.

No significant data out in the world’s largest economy today. The Redbook index and ISM New York index in the early afternoon cap off a mostly quiet day.


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.