Longrock, England -- (SBWIRE) -- 08/22/2014 -- Since the European Central Bank introduced unprecedented fiscal stimulus back in June (including a negative deposit rate and rate cut) the Euro has been trending on the back foot against the Pound and US Dollar.
Although conflicting information regarding the potential timeline for a Bank of England interest rate increase has since pushed the Pound lower, the Euro’s bearish relationship with the US Dollar has persisted.
A stream of below-forecast economic reports for the Eurozone and its largest economies has upped the odds of the ECB having to bring in quantitative easing-style stimulus in the near future and left the common currency struggling.
The Eurozone’s growth figures for the second quarter were particularly alarming given that they showed that the currency bloc’s economy stagnated, indicating that its tentative return to growth is already being tested.
The situation in France, the so-called ‘Poor Man of Europe’ has also been troubling, and Germany (the Eurozone’s largest economy and main driving force) has been feeling the strain of late.
On a quarter-on-quarter basis, the French economy also stagnated rather than growing by the 0.1% anticipated.
German GDP for the second quarter also defied forecasts, having contracted by -0.2% on a QoQ basis rather than shrinking the 0.1% anticipated.
If the Eurozone’s fundamentals continue to fall flat the Euro is likely to continue trending lower.
As it stands, it is looking very likely that the ECB will be the last of the four major central banks (out of the ECB, Bank of England, Bank of Japan and Federal Reserve) to begin tightening fiscal policy. Of the four the ECB is also the most likely to introduce further tightening measures.
If it appears that the BoE and FOMC will begin hiking interest rates in the spring of 2015 the Euro could touch fresh lows against both the Pound and US Dollar in the months ahead.
Similarly, if the ECB does indeed introduce quantitative easing style stimulus in the same timeframe, it will significantly undermine the appeal of the Euro.
As stated by Matthew Olney of Euro Exchange Rate News; ‘With Eurozone data set to continue to disappoint, the Pound is likely to regain the ground lost over the past few weeks. The Euro is set to come under increasing pressure as investors raise their bets that the European Central Bank will have to implement new monetary measures if the region is to avoid sliding back into recession.’
Over the next few weeks investors will be keeping a sharp eye on economic reports from the Eurozone, the UK and US.
Disappointing news for the former region or encouraging figures from the latter nations could see the Euro extend recent losses in the mid-term.
Euro Exchange Rate News
Unit 0, Longrock Industrial Estate, Longrock, Penzance, Cornwall, England, TR20 8HX
Matthew Olney - Author