European Political Stability Growing: Long Term Euro Strength?

According to the latest polls from the Berelsmann foundation, support for populist, anti-EU groups has fallen considerably since the heights of 2018. We saw a fair amount of volatility between 2017 and 2018 as general elections in European leaders France and Germany played out. There was a real concern from pro EU parties that other members might be tempted to follow in line with Britain’s push with Brexit. However, over the last couple of years Berelsmann have recorded a drop from 33% to 20% in support for populist groups in Germany. Investors might take a shine to this stability and so we might see added euro strength in the long run.

Sterling seems to have lost it’s momentum, with GBPEUR capping out in the mid 1.12s on interbank exchange rates sights might be turning to this morning’s construction data and speech from the Bank of England for clues of another change in trend. With housing data proving particularly positive this week it will be interesting to see if the Bank of England put of positive tone on as a result.

EUR USD – Positive Employment Data From the Services Sector Yesterday – Key Employment Data

The euro has continued it’s fall from the 2 year highs it was enjoying against the dollar at the start of the week. Indeed, despite the growing economic concerns coming to light and the looming political uncertainty driving up as a result of the elections drawing closer, the US dollar has managed to make inroads against the single currency with EUR USD falling to the mid 1.18s. The 1.25% fall since Monday potentially reflects a readjustment from the markets with the euro close to breaking through the 1.30 mark. It will be interesting to see if we see a change in pricing on the back of today’s key employment data. The Nonfarm payroll release has historically proven to be a market mover, particularly when levels vary wider than expected. It might be worth taking note of the positive employment data produced yesterday from the services sector. The latest ISM employment index release, which tracks various indicators of growth, posted a reading of 47.9 as opposed to the expected 31.9 indicating the economy is growing at a much faster pace than the markets had expected. If we see a similar surprise in this afternoon’s release we might see more favourable price movement for USD exchange rates as we go into the weekend

EURGBP: Fears of COVID-19 2nd Wave Stall Economic Recovery

Fears of an accelerated second wave of COVID-19 have started to stall the economic recovery across Europe’s major players this summer according to the latest report from the data providers IHS. It seems the strict containment measures imposed in Spain and Italy have greatly affected activity, with retail sales levels and activity levels from the services and manufacturing sectors falling below market expectations. There was a lot of hope after month on month improvements from May through to July however question marks over data for the end of summer might begin to surface which could force the European Central Bank’s hand in detailing their plans for monetary stimulus in the months ahead. To counteract this trend we have started to see European leaders add to their relief programs to help keep their respective economies afloat. As oppose to the UK, German chancellor Angela Merkel confirmed they would be extending their equivalent of the furlough scheme to protect jobs in the immediate future. Something that might well provide added support for the single currency in the weeks and months ahead. During yesterday’s trading, France also added an extra €100BN to their Coronavirus recovery plan. This resulted in CAC jumping by around 1.3%. Should this positivity filter through to the currency markets we might see a shift in demand for the euro too. The program lists several changes to help drive business confidence, including funding to support wages and tax breaks for businesses. It will be interesting to see how France’s current account and Budget stacks up with the markets this morning as a result of this.

If you are planning to buy euros in the immediate future it might be worth discussing these releases with your account manager to help manage your exposure. Importantly, this morning’s factory orders release came out far better than expected with a contraction of just -7.3% year on year in July, as opposed to the consensus of an eye watering -20.4%. This is also another sign of improved business confidence within Europe’s powerhouse and may help the single currency’s prospects as the week comes to an end. Get in touch using the form below to discuss these factors further.

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