The euro gave up its gains recorded at the beginning of the week against the US dollar, falling to 1.06607, down 0.34%. As for the pound, the euro continues to record extended gains since Monday afternoon and reaches the highest level of 0.87109, during today’s session. Before that, the euro hit a new record against the Japanese yen at 161.045, the highest since 2008.
Today we saw the German CPI figures for October. Inflation growth fell to 3.8% in October compared to the same month last year. The complete slowdown eased month-on-month compared to last September’s 0.3%. Both readings matched the average analysts’ forecasts.
For the Eurozone as a whole, we also saw retail sales figures for September, which fell 2.9% year-on-year, compared to expectations of a 3.1% decline, but this decline is still well above the previous reading of 1.8. %. While the monthly reading also recorded a larger-than-expected decline of 0.3% compared to a decline of 0.2%, this decline was also lower than the previous contraction of 0.7%.
I believe these figures point to a further slowdown in the Eurozone’s domestic sector due to pressure from tightening credit conditions, despite some positive signals from the service and manufacturing sectors, which point to the region’s economy stabilizing and returning to growth. Growth and cessation of the current contraction in activities. However, this recovery may take more time to reach households who are weak in sentiment and still tend to cut spending. As for bond markets, the decline in the yield on ten-year European government bonds continued to put pressure on the European currency, falling to 2.626% this morning, the lowest levels not seen since mid-September.
EUR recovers against GBP, yen continues to be affected by negative economic data
The euro’s gains against the pound are part of the euro’s attempt to recover from losses that have extended since late last week, after Bank of England Governor Andrew Bailey spoke of ruling out the possibility of a rate cut anytime soon. While Bailey maintained the same tough tone in his speech this morning in Dublin, Ireland, he also emphasized that there are escalating risks to inflation, including risks of expanding conflict in the Middle East.
The Bank of England president’s remarks came after the speech of the European Central Bank’s chief economist, Philip Lane, who stressed that progress in the fight against inflation is not enough, despite what has been achieved so far, and cited the risks of rising energy prices, which may lead us to be very unsure that the current inflation decline, which may rise again before returning to its right track.
It seems that the talk of ECB officials may also indicate that it could hold record high interest rates longer than expected over the next year, as is the case with the Bank of England and the Federal Reserve.
However, the story is different for the Japanese yen. Today’s gains in the euro against the yen came as negative data continued to flow from the Japanese economy. Today we saw a lower-than-expected reading of the leading index at 108.7 compared to expectations of 108.8.
This reading followed a negative reading of household expenditure figures, which continued to decline for the seventh consecutive month at the level of the annual reading, which recorded a decline of 2.8%.
I think this week’s negative data may help the Bank of Japan stick to its overly loose monetary policy that won’t hinder growth in an already declining economy, which seems to be more central to central bank than inflation.