Fresh Lows For The Euro But How Low Will It Go

Wednesday was yet another feverish day for the ailing single currency as investors continued to dump it like there was no tomorrow. It was a relentless sell off, continuing from the previous days since the ECB started their bond buying program. The planned €1.1 Trillion deal started this week and since we have seen the euro weaken significantly across the board.

Yesterday was no different as it lost 1.5 percent against the rallying US dollar and 1.25 percent against sterling, reaching levels not seen for some 12 years, although it was clear that sterling/euro is less of a free fall as half of the gains made were lost by the close of play.

To put this dramatic collapse into perspective, in the last month buying that dream villa on the Algarve costing €300,000, yesterday its costing a staggering £16,700 less than this time last month!

Sterling is certainly not the currency of the month though as we have seen mediocre performances against most of the other major currencies. Industrial production and manufacturing figures both came out poorly yesterday, with manufacturing posting a significantly worse than forecast figure of 1.9 percent compared to 2.6 percent while the industrial figures came in negative. The pound lost ground against most of the major currencies albeit by not much, but with most notable drops coming against the South African Rand and of the course the bullish US dollar.

The only US data was regarding crude oil stocks, so nothing really to shout about but regardless its riding high off the back of interest rate expectations. We have previously seen the expectation for an August rate rise drop to a June rate rise and since the dollar has been unstoppable. Its reached 12 year highs against the struggling euro and matched multi-year highs against sterling, breaching that psychological resistance point of 1.5. Whether it will stay there is a different matter as the pound rolls on with our own expectations of interest rate rises, although they’re unlikely to be anytime close to our cousins across the pond.

Elsewhere we had the RBNZ monthly interest rate setting meeting and policy statement yesterday evening. We were expecting New Zealand interest rates to remain unchanged at 3.5 percent and weren’t let down, but the accompanying statement indicated future rate movement, be it up or down, would depend on future economic data. This open minded stance led the way for Kiwi dollar strength as it took two cents from sterling.

Also down under overnight the Australian unemployment data came out showing a drop from 6.4 percent to 6.3 percent, whilst the number of newly employed rose more than expected by 15,600 rather than 15,000 as well as a revision upwards of last months figure. All positive stuff leading the way for Aussie dollar strength as it gained a cent immediately and a further cent and half over the course of Asian trading, all in all about 3 cents stronger than close of trade yesterday.

So onto Thursday and whether we will have further euro carnage

We have German, French and Spanish inflation data although its unlikely to have much impact in the current market, along with UK trade balance data at 9.30am ad EU industrial production at 10am. The afternoon is a bit more interesting as US retail sales are released which, if better than expected, will no doubt fuel the dollar fire even more. Top this off with a speech from Bank of England Governor Mark Carney and we should be in for another interesting day.

Although rates are undeniably fantastic right now for anyone buying euros, as we saw yesterday there does seem to be a cap on it. With the US dollar taking pole position with investors and Mark Carney speaking today, where he could well tone down the current strength of pound/euro, it might be prudent to jump in while the going is good with any upcoming euro purchases just in case the bubble bursts. So speak to one of the team today for some friendly guidance on your personal requirements.