Euro rate recovery continues

7 December, 2015

Rob Bastin

Last week was a particularly eventful one on the currency markets, with major announcement rocking the markets and causing large intraday swings. The UK posted some poor PMI figures for Manufacturing and Construction, although Services were slightly better. The pound remains under pressure with growth slowing, inflation stalling, and with interest rates more likely to be cut in 2016 than raised higher. The big talking points however relate to the Euro and the USD which have been driving the markets in recent weeks.

The Euro had been sold off aggressively in November as markets priced in expected rate cuts and further QE form the ECB on Thursday. Unfortunately for those still to buy their Euros, the announcement fell short of markets expectations with the QE package simply extended rather than increased in volume, and a deposit rate cut of just 0.1% rather than a forecast 0.15-0.2%. The Euro quickly re-adjusted its value in a matter of hours following the decision, surging around 4 cents against the pound and USD. Euro buyer should be wary that this recovery could continue further in the lead up to Xmas.

Friday’s trading then flipped the focus onto the USD, which was now sat in a far weaker position against the Euro than just 24hrs previous. This month’s Non-farm Payrolls figure and unemployment rate has been one the most eagerly awaited as the Federal Reserve prepare to announce a potential rate hike on December 16th. The markets were looking for a strong figure to support this possibility and the result of 211k against forecasts of 200kwill go some way to increasing this likelihood. As with the Euro however, this expectation has been building for some time and the Dollars’ value has been increasing with that speculation. Therefore the very same risks of a bounce back are possible if the FED decide to hold out until next year before implementing the first hike.

The week ahead is much quieter for major releases, with the focus back onto the UK and British Pound. The main announcements to watch out for are as below: 

9:00am (EUR) – Gross Domestic Product
9:30am (UK) – Manufacturing and Industrial Production
3:00pm (UK) – NIESR GDP estimate 

8:00pm (NZD) – RBNZ Interest Rate Decision & Statement 

12:30am (AUS) – Unemployment Rate
12:00pm (UK) – BoE Rate Decision and Minutes  

1:30pm (USD) – Retail Sales