How quickly the market has moved on from President Obama’s
re-election! Focus is back squarely on the eurozone and sterling has enjoyed
another nudge higher against the euro as the latter has been sold-off quite
aggressively.
What’s behind this fresh euro-weakness? German industrial
production data for the month of September has come in at an alarming -1.8%
this morning, which represents a five-month low. To make things worse, eurozone
retail sales data also revealed an unexpected contraction this morning.
The EU Commission has also added extra weight to the single
currency, by releasing pessimistic growth forecasts for the eurozone. It sees eurozone GDP shrinking by 0.4% this
year, before growing by just 0.1% next year. Greece is to contract by a
staggering 6.0% this year and by another 4.2% next year. EU Commissioner Rehn sounded
distinctly downbeat in his press conference today, citing tightening credit
conditions and weakening demand.
GBP/EUR climbed to a five-week high of €1.2530, whilst EUR/USD
fell to nearly a two-month low of $1.2735. We have been citing downside risks
to the euro on the basis of the eurozone’s dire economic outlook for some time
now. The increasing evidence of Germany’s decline is making the market stand up
and take notice. Watch out for tonight’s Greek austerity vote, as the euro
could get some relief if, as it should do (though only just), the Greek
parliament approves the latest austerity proposals.
Richard Driver,
Currency Analyst
Caxton FX
