Strong German growth data buoys Euro, central bank heads add little

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15 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 rallied by almost one percent against the US Dollar on Tuesday after an upbeat set of economic data releases in the Eurozone suggested that the economy in the currency bloc could be on course to pick up pace in the final few months of 2017.

W
ith Tuesday’s meeting of central bank heads in Frankfurt providing surprisingly few nuggets of information on future central bank monetary policy, investors instead focused on rather upbeat economic news out of Germany. The German economy grew by a better-than-expected 0.8% in the three months to September, while the Eurozone as a whole grew by a robust 0.6%.

President of the European Central Bank Mario Draghi was accompanied by a number of central bank heads, including Janet Yellen and Mark Carney, in speaking at a central bank communications conference in Frankfurt. Draghi claimed that forward guidance has been successful in steering market expectations for future policy, although added nothing in terms of market moving rhetoric. Euro traders will be hoping to obtain slightly more clarity on future policy from senior rate-setter Peter Praet, who is set to speak this morning.

Major currencies in detail

GBP

Sterling sank against a broadly stronger Euro, although ended London trading higher versus the Dollar above the 1.31 level. Yesterday morning’s modest sell-off following the release of a disappointing set of inflation figures proved short lived. With the next interest rate hike not priced in until deep into 2018, Tuesday’s inflation data did little to shift expectations for central bank policy in the UK.

Bank of England Governor Mark Carney also added little in terms of new information on monetary policy during his appearance in Frankfurt yesterday. Carney reiterated that the UK is operating under ‘exceptional circumstances’, and the bank will stretch out the horizon over which it will aim to return inflation to target due to the Brexit process.

Meanwhile, this morning’s labour report was broadly encouraging. Wage growth excluding bonuses grew by 2.2% in the three months to September, while unemployment declined again in real terms.

USD

The US Dollar index ended lower for the day yesterday, slipping by over half a percent. Federal Reserve Chair Janet Yellen spoke during the central bank conference, although the market mostly overlooked her comments on forward guidance.

Retail sales in the US are forecast to come in flat in October this afternoon, which would bode ill for overall growth in the final quarter of the year. Of more importance to the greenback will be the latest set of inflation data at 13:30 UK time. Headline inflation is expected to have slowed to 2% in October, which could raise some doubts over the possibility of a rate hike from the Federal Reserve next month.

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