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Euro benefits from European Central Bank (ECB) plans

Published: Friday 26 October 2018

  • Sterling slips on European Central Bank and Prime Minister’s pressure
  • US Dollar stalled ahead of Gross Domestic Product (GDP) data
​​By David Johnson

Most of yesterday’s Eurozone data was pretty much as forecast, but German business sentiment and expectation indices were worse than last month, and the business expectations index fell below the 100 reading, indication contraction in the economy. I have mentioned this before; whilst Brexit is, at best, a page seven item in European news rather than the front-page coverage we see in the UK, it seems to be dawning on businesses in the EU that ‘no deal’ could harm them and that would show up in these forward-looking indices. Perhaps EU leaders should take note. The Euro would have weakened marginally on this news, but the European Central Bank (ECB) left their base rate unchanged and talked about stopping bond asset purchases and about interest rate hikes in the summer of 2019.  
Great window of opportunity for US Dollar/Euro sellers
Sterling had a poor day with no data and the UK Prime Minister under immense pressure over her Brexit plans. That ECB news dropped the Pound half a cent against the Euro; well within recent ranges, but it fell a similar amount to a seven-week low against the US Dollar. Those with US Dollars or Euros to sell into Sterling have a lovely window of opportunity here.
USD star performer so far…
The US Dollar has been the standout performer of late, strengthening across the board, but that positive mood appears to be mellowing and today’s US economic GDP growth data could well be the factor that stops and maybe reverses some of that. After 4.2 percent growth in Quarter Two, forecasters are looking for something like 3.2 percent in Q3. Now, that is still very healthy growth, but it will bolster those (including the US President) who are questioning why the Federal Reserve is so gung-ho when it comes to interest rate hikes. We will also get the Michigan Consumer Sentiment Indices. If they are also weaker, that’ll ramp up the pressure on the Federal Reserve and should weaken the US Dollar.
An Olympian escapee
And, if you turn up to Eversham Golf Club in Worcestershire this weekend, don’t be surprised to find an escaped rhea running around the fairways. If you’re not familiar with the bird, it’s like a slightly smaller ostrich.  The problem is that rheas can run at up to 40mph, so no one can catch the escapee. What made me laugh, though, was that the club has nicknamed him Linford, after the sprinter, Linford Christie, who won a gold medal at the 1992 Olympics. I think that hints something about the average age of the club’s membership.

At the wedding reception, the father of the bride, an eminent hospital consultant, stood to make his speech. Everyone was intrigued, because he had been scribbling on the page and altering it for the whole of the reception. In the end, the piece of paper he had written the speech on was crumpled and looked like scrap. Several times during his speech, he halted, squinted at the overwritten notes and then carried on.

At one moment though, he paused, squinted, looked into space, squinted again, was seen to be mouthing the words that led up to that point and then dropped his hands in exasperation. He looked at the audience and said, “I am so sorry, I just can’t read what I have written, but I remember it being a very relevant point. Is there a nurse or pharmacist in the room?”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
USD 13:30 US: Advance Gross Domestic Product 4.2% 3.3%
USD 13:30 US: Advance Gross Domestic Product Price Index 3.0% 2.1%
EUR 15:00 US: Revised University of Michigan Consumer Sentiment 99.0 98.9

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