Euro Talking Points:
- The Eurozone managed to grow in the first quarter of 2019, but inflation remains low.
- EURUSD pares some of yesterdays gains as investors await Mario Draghi’s economic outlook.
- EURGBP remains firm as Brexit concerns keep the Pound subdued
The Euro was mixed against other major currencies in the opening of the European session as investors digest the large number of data releases in the last 48 hours, ahead of the ECB rate meeting later today.
Join our analyst Nick Cawly as he follows the ECB rate release and its impact on the markets in our live webinar at 12.30pm BST.
EURUSD was showing some volatility in the morning session on the back of the three-week highs recorded yesterday after ADP hugely missed expectations about private job creation in the US in the month of May. The pair passed the 1.1300 handle for the first time since April 18 but slipped back shortly after, settling around 1.1227 where it traded in a tight 12-pip range in the overnight session.
EURGBP showed some resilience to the anticipation of the ECB meeting in the morning session as Brexit and weakening UK macroeconomic data continue to dampen Sterling’s ability to push higher. GBP failed to take advantage of EUR bears to bring the pair down from highs of 0.8900 recorded on Tuesday, last seen in the month of January at the height of Brexit deal voting turmoil. The pair is currently trading around 0.8860. The contraction experienced in the UK manufacturing industry kept the composites PMI below expectations for the month of May, despite a slight improvement in services PMI.
UK data released in the last few days: PMI figures are mostly below expectations
The Eurozone continues to grow and unemployment falls
Final GDP figures confirm that the Eurozone managed to grow 0.4% in the first quarter of the year, despite continuing political and economic uncertainty dampening growth prospects around the globe. On top of that, employment managed to stay strong as the first quarter of the year saw a growth in employment of 0.3% for the bloc, further supported by the fall in unemployment that was revealed on Tuesday, where the unemployment rate fell from 7.7% to 7.6% in the month of April. Household consumption for the first quarter of the year was 0.5% up from 0.3% in the previous quarter but missing expectations of 0.6%.
Services PMIs remained mostly above expectations for the month of May, keeping the Eurozone Composite PMI in expansion at 51.8 (Exp. 51.6) despite growing concerns about the manufacturing industry.
Inflation continues to fall below the target
Despite a positive note from employment and growth, investors remain weary as inflation continues to fall despite the ECB’s efforts to push prices higher by increasing the money supply in the market. Headline inflation in the Eurozone fell to 1.2% YoY in the month of May, down from 1.7% in the previous month and below expectations of 1.3%, with core inflation dropping to 0.8% YoY. The 5y5y inflation swap, a measure of euro-area inflation expectations, has fallen to its weakest level since 2016.
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- See our Q3 forecasts to learn what will drive FX the through the quarter.
— Written by Daniela Sabin Hathorn, Junior Analyst