A report has been released which shows the German population is actually shrinking, while the UK population is booming and is likely to increase by 25% by 2060, becoming the largest nation in Europe. Unfortunately the size of the economies is not quite following suite, the UK population may be growing, but our economy is currently stalled with 0% growth in the 2nd Quarter of this year, however the latest figures from Germany do point to a shrinking economy, and the ifo business survey proved to be depressing reading for our European cousins. The actual level of activity in the German survey still held up relatively well, but the expectations element fell to it's lowest level since 1993, when Germany was in recession. Germany is the powerhouse of the European economy and signs of weakness here have weighed on the Euro taking it to a 6 month low against the Dollar.
The Pound couldn't make any headway against the Euro in spite of the German data as the weak UK news from over the weekend, GDP and comments for the BoE deputy governor, continued to weigh on the Pound. The Pound did fall against the Dollar as news from over the pond showed more resilience in the US economy. Consumer confidence was back on the rise, to a 3 month high, and new homes sales actually rose, with the long term trend of falling prices also moderating. The Pound fell below 1.84 on the back of the Dollar's rise, but a small rise in the price of oil, caused by fears of hurricanes in the gulf of Mexico, and a bit of profit taking has bounced the rate back above 1.8450.
The Dollar's recent rises have more to do with taking joy in the Euro's demise than any strong driving of the Dollar, and this could continue with the ECB coming under increasing pressure and criticism for not reacting to the weakening state of the Euro economy. Of course those who criticise must also look at the level of inflation in the Eurozone, however inflation had recently been revised downward, along with growth, and many think that it may have now peaked. Once the ECB see that inflation has peaked, and that there are no 2nd round effects on wages, then sentiment could quickly shift and the Euro could restart it's dramatic fall.
No data today for the UK, and little elsewhere. In the Eurozone we have a first estimate of German CPI, likely to show some moderation from last month, but not enough to tip the balance towards rate cuts. Over in the US we have durable goods orders, which is a volatile measure, but is expected to be flat. With none of today's data releases important enough to shock the markets, then the currencies are likely to remain rangebound.
Michael Corcoran | Treasury Solutions | nabCapital