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Euro rises after economic growth forecast revised higher

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10 November 2017

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The Euro was back on the front foot on Thursday after the latest set of economic growth forecasts from the European Commission suggested that the Euro-area economy is on course to expand at its fastest pace in a decade in 2017.

he European Commission expects the Eurozone to grow by a very healthy 2.2% this year, significantly higher than the 1.7% forecast in the spring, and a much faster pace than that of the UK. This is expected to be followed up by a robust 2.1% in 2018 and 1.9% in 2019. European Central Bank member Philip Lane also struck a hawkish tone yesterday, raising hopes that the ECB would tighten monetary policy at a faster than expected pace next year. Lane claimed that the Governing Council could ‘get activity and move on’, should inflation in the Eurozone show firm signs of returning to its target in 2018.

The common currency rose to its highest level in almost a week on Thursday, although with significant market moving news few and far between in the past few days, the Euro has remained mostly stuck in a range. Economic news is light again on Friday with no significant data releases in either the US or Eurozone. Investors will already be gearing up for a much more action packed week next week with US inflation, retail sales and Eurozone inflation all on the docket.

Meanwhile, continued scepticism surrounding Donald Trump’s proposed tax cuts and its potential impact on the US economy continued to weigh on the greenback. A US Senate tax cut bill was announced yesterday, one which differed from the House of Representatives, complicating the Republican tax overhaul efforts.

Cabinet reshuffle weighs on Sterling

Uncertainty in Theresa May’s government following the departure of two members of the Prime Minister’s Cabinet in as many weeks weighed on the Pound yesterday.

Sterling ended the session lower against both the US Dollar and Euro, with the appointment of Penny Mordaunt as International Development Secretary following the resignation of Priti Patel raising questions marks over the solidarity of Britain’s government ahead of a crucial round of Brexit talks.

Economic growth forecasts for the UK from the European Commission were also underwhelming yesterday and did little to improve sentiment towards the currency. The EC expects the UK to expand by a fairly meagre 1.5% this year and 1.3% in 2018.

Industrial and manufacturing production data this morning has the potential to shift the Pound if it materially deviates from consensus. Industrial and manufacturing output are both forecast to have expanded again in September by 0.3% when released at 9:30 UK time.