Friday, May 29, 2020

Euro rises with strong German data; concerns still voiced

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On Friday, the euro rose to a four-year high verses China’s yen, and climbed for the second day against the dollar.

The increase comes after stronger-than-anticipated business sentiment in Germany highlighted the possibility of continued upward growth.

The euro, currently 0.3% up at 136.68 yen; had previously risen up to 136.99 yen.

Against the dollar, the currency was 0.3% up at USD 1.3518.

In addition, the Ifo survey of business sentiment saw a dramatic rise for Germany, smashing past November’s forecast to reach its highest level since mid-2012.

Seen as the engine of the Eurozone economy, a further survey from ZEW showed that German investor sentiment is now at its highest peak in four years.

“The enthusiastic IFO report has investors comfortable increasing exposure to the euro this morning,” noted Senior Corporate FX Trader Scott Smith of the Cambridge Mercantile Group, “pushing euro/dollar back above USD 1.3500.”

Whilst confidence in Germany is positive, he added that its recovery has failed to bolster the rest of the Eurozone.

This includes France, the Eurozone’s second-largest economy, which has recently witnessed a contraction.

Cause for concern

As the single currency’s largest economy, Germany might be powering ahead in terms of growth, yet as a whole the Eurozone is heading into a “catastrophe,” one economist cautioned last Friday.

Both Germany’s manufacturing and services sectors outperformed estimates whilst the negative data for France indicated a growing gap between Germany and the other Eurozone member states.

The single currency region’s GDP rose by only 0.1% in quarter-three, marking a slowdown from the previous quarter’s expansion of 0.3%.

“It’s pretty frightful,” RDN Associates’ Economist Roger Nightingale noted on the downward trend in the data.

“Nothing has changed in the last five or six years … and they’re heading for, I’d say, a catastrophe.”

“[In the crisis] the Americans hit a wall and went into recession” he continued. “But while [they] put it right and recovered to some extent, the Europeans have not recovered and have not put it right.”

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