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Monthly Wrap: Euro rapidly recovers from initial losses as ECB stimulus disappoints

currency-newsMonthly Wrap: Euro rapidly recovers from initial losses as ECB stimulus disappoints
Key Takeaways:
  • Euro sees sharp movement as ECB unveils a fresh stimulus package
  • Single currency remains vulnerable to signs of manufacturing slowdown
  • EUR Monthly lows: £0.88, $1.09, C$1.44, A$1.59, NZ$1.70
  • EUR Monthly highs: £0.92, $1.12, C$1.49, A$1.67, NZ$1.75
 
As the European Central Bank (ECB) unveiled a fresh round of monetary stimulus the euro saw a sharp decline against many of its rivals.
 
Although markets widely expected the move to cut the deposit rate to a fresh record low of -0.5% and restart the quantitative easing programme this still weighed heavily on the single currency.
 
Investors remain sceptical that this will be enough to fuel stronger Eurozone growth, given the lack of supportive fiscal policy from Eurozone governments.
 
However, as the details of the minutes soon indicated that the stimulus is less generous in nature than initially thought the euro was able to bounce back.
 
Even with trade tensions between the US and China showing some signs of easing the risk of a further slowdown in global trade remains, to the detriment of the German economy.
 
While July’s German trade surplus unexpectedly widened this failed to offer EUR exchange rates any significant boost.
 
With inflationary pressure still muted and the Eurozone manufacturing sector falling further into contraction markets saw little cause for confidence in the single currency.
 
Another monthly deterioration in September’s ZEW economic sentiment surveys could expose the euro to further selling pressure next week.
 
Fresh evidence that businesses are taking a pessimistic outlook may encourage bets on the possibility of a third quarter economic slowdown.
 
A decline in the monthly Eurozone consumer confidence index may also weigh heavily on the appeal of the euro, with a further deterioration likely to fuel a decline in domestic demand.
 
Unless September’s raft of Eurozone manufacturing and services PMIs can demonstrate signs of improvement the mood towards the single currency looks set to sour.
 
If the Eurozone manufacturing sector can move closer to a state of positive growth, though, this may offer EUR exchange rates a rallying point.
 
Any further weakness within the sector would leave the euro vulnerable to selling pressure, meanwhile.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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